Learn Trading Forex: Pips and Profitability

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How to determine whether the trade will make a profit or loss? Well, it is usually measured by the currency pair’s movement from the positions at the end of the day.

If a trader who exchanges EUR/USD pair will gain profit if the value of the Euro increases with respect to the value of the US dollar. For example, if the value of the Euro is 1.1835 and the trader exited the trade at 1.1901, they would profit from 66 pips from the trade (1.1901-1.1835 = 66).

In the case of USD/JPY, if the Japanese Yen is at 112.06, the trade will lose 3 pips when the position closes at 112.09 but can gain 6 pips if the trade closes at 112.01.

This small difference is huge in the multi-trillion currency exchange market. And the profit and loss can occur in seconds. For example, if the position for $10 million close at 112.01, the trader will gain ¥500,000 as profit ($10 million x (112.06 -112.01) = 500,000). The ¥500,000 profit in the dollar will be $4,463.89.

Real-World Example of Pip

Hyperinflation and devaluation are the two factors that can increase exchange rates too much; they become uncontrollable. This can have two major impacts:

• Pressure consumers to carry a large amount of cash
• Make unmanageable, and the pips no longer have an influence.

An example of this case is Germany’s Weimar Republic in November 1932. The exchange rate pushed from the pre-World War I value of 4.2 marks per dollar to 4.2 trillion marks per dollar.

In 2001, the Turkish Lora reached the unreachable limit of 1.6 million per dollar, and trading systems collapsed. The government renamed it the new Turkish lira and eliminated the six zeros from the value. In January 2021, the average stand rates were at 7.3 lire per dollar.

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If you’d like to earn extra income trading on the Forex market, consider learning how to currency trade with Forex Smart Trade.   With their super-accurate proprietary trading tools and best-in-the-business, personalized one-on-one training, you’ll be successful.  Check out the Forex Smart Trade webinar that shows one of their trader’s trading and how easy, intuitive, and accurate the tools are.  Or try the Forex Smart Trade 30-day introductory trial for just ONE dollar.

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