what is 50 points in mt4 forex

When trading in the forex markets, it is important to understand the concepts of percentage points and pips. These terms serve as fundamental units of measurement that determine profit or loss in forex trading, and going into forex trading without a clear grasp of these concepts is like going into an exam without a pen. Having a good grasp of pips and percentage points will improve your ability to analyze trades and make informed decisions quickly and efficiently.

Percentage Points

Percentage points represent a numerical value used to express a change in percentage terms. In forex trading, percentage points are not equivalent to pips (in some contexts, they are used interchangeably). Instead, they are used to describe larger changes in exchange rates or interest rates, as you might see in the news. For example, if the interest rate of a countrys central bank increases from 1% to 3%, it means there has been a change of 2 percentage points. Notice that we do not say an increase of 2%, this is because a 2% increase would imply that the interest rate has risen by 2% of the original value, which would be an increase of 0.02%. In this instance, the percentage increase in the interest rate is actually 200%, so it would be catastrophic to get percentage points and percentages mixed up. Percentage points are essential in analyzing economic data, central bank policies, and their impact on currency values.

What are Pips？

Pips, which are short for “percentage in point”, are the smallest unit of measurement in forex trading. In other fields, they can be referred to as basis points, but this can get confusing, as we will explain below. A pip is essentially the smallest unit of measurement of a currency pair, and as most currency pairs are quoted to 4 decimal places, this makes a pip a one-hundredth of a percentage point. They represent the fourth decimal place in most currency pairs, except the Japanese yen, where they represent the second decimal place. This is confusing as the pip is only defined as the smallest increment a currency pair can change in and not a set value like a percentage point. For example, if GBP/USD improves from 1.2466 to 1.2467, that is an increase in 1 pip, and if GBP/JPY improves from 172.29 to 172.30, that is also an increase in 1 pip. Pips are used to calculate the price movement of a currency pair and measure profits or losses.

Pips and pipettes

To view an even tighter spread, currency pairs can be given in fractional pips, or ‘pipettes’, where the decimal place is at 5 places, or 3 places if dealing JPY. A pipette is therefore equal to one-tenth of a pip.

EUR/USD example:

EUR/USD = 1.60731

EUR/USD = 1.60731 – 0.0003 is the pip

EUR/USD = 1.60731 – 0.00001 is the pipette

The fourth decimal place is the pip, and the fifth decimal place is the pipette.

How to use pips in forex trading

If a trader enters a long position on GBP/USD at 1.5000 and it moves to 1.5040, the price has moved 40 pips in the traders favour, potentially leading to a profit if the trade is closed. On the other hand, if the trader goes long on GBP/USD at 1.5000 and the exchange rate falls to 1.4960, the price has moved 40 pips against the trader, potentially leading to a loss on the trade if it is closed.

Similarly, if a trader goes long on GBP/JPY at 145.00 and it moves to 145.75, the price has moved 75 pips in the traders favour. If the exchange rate goes against the trader, and GBP/JPY falls to 144.25, the price would have moved 75 pips against the trader.

As well as measuring price movements and profits and losses, pips are also useful for managing risk in forex trading and for calculating the appropriate amount of leverage to use. For example, a trader can use a stop-loss order to set the maximum amount he is willing to lose in terms of pips in a trade. Having a stop-loss in place will help to limit losses if the currency pair were to move in the wrong direction.

Forex position size calculator

Pips can be used for the calculation of position size. If a traders combined position sizes are too large and they experience a number of losses, their capital could be wiped out. Therefore, trading with an appropriate position size is essential.

There are several steps involved in calculating position size:

A trader must determine the amount of capital they are willing to risk per trade. If this is 1% per trade, they could make a minimum of 100 trades before their capital is wiped out. If the traders account has a balance of $5,000 and they are willing to risk 1% per trade, this equates to $50 per trade.

Traders can determine a stop-loss in pips. For example, if a trader goes long on EUR/USD at 1.3600, they could place a stop-loss at 1.3550. This stop-loss equates to 50 pips.

The last step depends on what lot size is being traded. A standard lot refers to 100,000 units of base currency and equates to $10 per pip movement. A mini lot is 10,000 units of base currency and equates to $1 per pip movement. A micro lot is 1,000 units of base currency and equates to $0.10 per pip movement.

If the trader risks 1% of his $5,000 balance per trade for a micro lot ($0.10 per pip movement), the position size would be $50 (50 pips x $0.10) = 10. Therefore, the traders position size would be 10 micro lots.

Pip value calculator

How much profit or loss a pip of movement produces is dependent on the value of each pip. In order to learn how to work out pip value, we need to know the following three things: the currency pair being traded, the trade amount, and the spot price.

Pip value formula

The formula to calculate the value of a pip for a four-decimal currency pair is:

Pip value = (0.0001 x trade amount) spot price

How to calculate pips

Example 1:

Let‘s say a trader places a $100,000 long trade on USD/CAD when it’s trading at 1.0548.

The value of USD/CAD rises to 1.0568. In this instance, one pip is a movement of 0.0001, so the trader has made a profit of 20 pips (1.0568 – 1.0548 = 0.0020 which is the equivalent of 20 pips).

The pip value in USD is (0.0001 x 100,000) 1.0568 = $9.46

To calculate the profit or loss of the trade, we multiply the number of pips gained by the value of each pip.

In this example, the trader made a profit of 20 x $9.46 = $189.20.

Example 2:

Let‘s say the trader places a $10,000 long trade on USD/CAD when it’s trading at 1.0570.

The value of USD/CAD falls to 1.0540. In this instance, one pip is a movement of 0.0001, so the trader has made a loss of 30 pips (1.0570 – 1.0540 = 0.0030 which is the equivalent of 30 pips).

The pip value in USD is (0.0001 x 10,000) 1.0540 = $0.94

In this example, the trader made a loss of 30 x $0.94 = $28.20.

Pip value indicator on MT4

Pip values can be difficult and take time to calculate, while some traders would rather focus on perfecting their forex trading strategy. This is why they have developed a pip value indicator for MetaTrader 4, an internationally recognized trading platform that we host via our platform. A wide range of MT4 indicators are available to download separately to your account.

Forex pips can be calculated using the formula above and displayed on our trading platform, Next Generation, in the form of forex price charts and graphs. These can be customized with our drawing tools. We have a wide range of technical indicators to help you with your forex trading strategy.

What causes pip values to change？

The base value of a traders account will determine the pip value of many different currency pairs. For a USD-denominated account, which is common for the most traded currency pairs, if the currency pair has USD as the second (quote) currency, the pip value will always be $10 on a standard lot, $1 on a mini lot, and $0.10 on a micro lot.

The base value of a trader accout will determine the pip value of many different currency

Pip values would only change if USD was either the first (base) currency in the currency pair, or not involved in the pair, and if the value of USD moved significantly by more than 10% in either direction.

Lot Sizes and Pips

The size of your trade, referred to as the lot size, determines the value to you of each pip. There are four types of lot sizes in forex trading: standard lots, mini lots, micro lots, and nano lots. A standard lot consists of 100,000 units of the base currency, while a mini lot is 10,000 units, a micro lot is 1,000 units, and a nano lot is 100 units of the base currency. These then affect the size of a pip. Say you are trading a mini lot on the GBP/USD currency pair, and the price moves by 50 pips. Using the pip value mentioned earlier (0.0001), each pip, in this case, would be worth $1. If the price moves by 50 pips, your profit or loss would amount to $50.

Why Pips and Percentage Points Matter

Pips and percentage points are crucial in forex trading as they are the base increment in which everything is valued for several reasons:

Profit and Loss Calculation: Pips allow you to calculate their potential profit or loss accurately. By knowing your lot, the value of each pip, and the number of pips change, you can determine their financial outcomes.

Risk Management: Pips play a significant role in managing risk. Traders use stop-loss orders, which are placed a certain number of pips away from the entry price, to limit potential losses.

Trade Analysis: Pips help traders analyze the performance of currency pairs over time. By tracking the number of pips gained or lost in a trade, traders can identify trends, patterns, and potential entry or exit points.

Economic Data Interpretation: Percentage points are essential in interpreting economic data. Changes in interest rates, inflation rates, or other key economic indicators are always expressed in percentage points.

Percentage Points and Pips Takeaways

Pips and percentage points are essential concepts in forex trading that every trader should understand. Pips represent the smallest unit of measurement for price movement, while percentage points are used to express larger changes in percentage terms. Both pips and percentage points play important roles in calculating profits and losses, managing risk, analyzing trades, and interpreting economic data. You will need to familiarise yourself with these concepts totally before doing any trading.