This time, we will explain important "pips" in FX trading, focusing on the differences between yen-based and dollar-based quotes. We will also explain the digits and how to read them in detail to help deepen understanding.

1. What are Pips?

pipsare the smallest unit of price in FX trading. They serve as a standard for measuring price movements, and traders use this unit to evaluate profits and losses.

Basic definition

• 1 pip= 0.0001 of a currency unit

• However, for currency pairs involving the yen (JPY),1 pip= 0.01 of a currency unit

  
  

2. Pips for Dollar-based Currency Pairs

For dollar-based currency pairs (e.g., EUR/USD, GBP/USD), prices are usually quoted to four decimal places. In this case, 1 pip corresponds to a movement in the fourth decimal place.

Example: Pips for EUR/USD

• 1.1234→1.1235(1 pip movement)

• 1.1234→1.1244(10 pips movement)

  
  

3. Pips for Yen-based Currency Pairs

For yen-based currency pairs (e.g., USD/JPY, EUR/JPY), prices are usually quoted to two decimal places. In this case, 1 pip corresponds to a movement in the second decimal place.

Example: Pips for USD/JPY

• 110.12→110.13(1 pip movement)

• 110.12→110.22(10 pips movement)

  
  

4. Differences Between Yen-based and Dollar-based Pips

a. Decimal places

• Dollar-based: Four decimal places

• Yen-based: Two decimal places

Because of this difference, the value of 1 pip and the calculation methods differ.

b. Value of 1 pip

The value of 1 pip depends on the currency pair being traded and the lot size. Here are concrete examples for dollar-based and yen-based pairs:

• Dollar-based currency pair (EUR/USD)

  • 1 standard lot (100,000 euros)

  • Value of 1 pip ≈ $10 (100,000 euros × 0.0001 dollars)

• Yen-based currency pair (USD/JPY)

  • 1 standard lot (100,000 dollars)

  • Value of 1 pip ≈ ¥1,000 (100,000 dollars × 0.01 yen)

    
    

5. How to Calculate Pips

Calculation example for Dollar-based currency pair (EUR/USD)

1. Trading volume (lot): 1 lot (100,000 euros)

2. Price movement: 1.1234 → 1.1235 (1 pip movement)

3. Value of 1 pip: 100,000 euros × 0.0001 dollars = $10

   
   

Calculation example for Yen-based currency pair (USD/JPY)

1. Trading volume (lot): 1 lot (100,000 dollars)

2. Price movement: 110.12 → 110.13 (1 pip movement)

3. Value of 1 pip: 100,000 dollars × 0.01 yen = ¥1,000

   
   

6. Trading Strategies Using Pips

a. Risk Management

You can use pips to calculate risk per trade and limit losses. For example, to keep risk at 2% of capital per trade, you set a stop-loss order using pips.

b. Setting Profit Targets

Setting profit targets in pips helps you have concrete trading goals. For example, aiming for 20 pips of profit per trade, etc., can establish clear targets.

Summary

Pips are a very important concept in FX trading. By understanding the differences between dollar-based and yen-based quotes, decimal places, and the value of pips, you can improve trading precision and make risk management and profit target setting easier.

We hope this article will be useful for your trading.
Well then, happy trading!