Now let's just look at a few currency pairs to help us get an idea of

what a PIP is.

Most currency pairs are quoted using five digits.

The placement of the decimal point depends on whether it's a yen currency pair,

in which case there are two digits behind the decimal point.

All of the currency pairs have four digits behind the decimal point.

In all cases, that last itty bitty digit is the PIP.

So let's take some major currency pairs and crosses and see what the PIP is.

Say for instance that Euro dollar is at 1.2853,

the last decimal point, 3, is called as the PIP.

Let's say Swizzie USD CHF is at 1.2867.

That 7 number is basically the PIP.

If, let's say USDJPY is at 117.23,

that 3 is basically the PIP in that yen FX rate.

If it's a euro yen and it's at 150.65 the 5 is the PIP on the euro yen.

So let's focus on the euro-USD price first.

Looking at the euro-USD the price moves from say 1.2853

to 1.2873, it's just gone up 20 PIPs.

If it goes from 1.2853 down to say 1.2792, it's just gone down by 61 PIPs.

PIPs provide an easy way to calculate the P&L.

To turn that PIP movement into a P&L calculation,

all you need to do is to basically take the size of the position.

Say, for instance, you have 100,000 euro dollar position.

The 20 PIP move equates to $200 because it's euros 100,000

times 20 PIPs, which is 0.0020, and that's $200.

For a 50,000 euro dollar position,

the 61 point move translates into $305 because that's

50,000 euros times 0.0061, that's equal to 305.

Whether the amounts are positive or negative,

that depends on whether you were long or short for each move.

If you were short for the move,

for the move higher, that's a minus in front of the $200.

If you were long, it's a plus.

So, let's say you want to calculate that for another currency.

I mean, euro USD, which is what we considered earlier,

that's easy to calculate, especially for US dollar based traders,

because the P&L accrues in dollars.

Let's say you're trading dollar CHF, Swizzie.

Okay, and

you've got basically another calculation to make before you can make sense of that.

So that's because the P&L is going to be denominated in Swiss francs

because CHF is the Swiss francs is the counter currency.

If USD-CHF drops from 1.2267 to 1.2233,

and you're short US dollars 100,000 for

the move lower, you've just got caught 34 PIP decline.

That's a profit worth CHF $340, because that's a $100,000 times 34 PIPs,

which is 0.0034, that's equal to Swiss francs 340.

Yeah, so it's Swiss francs 340, but how much is that in US dollars?

To convert that into US dollars you need to divide