What Are Micro-Pips in Forex? Making Sense of Small Steps
Imagine you’re a forex trader and heard about something called “pips.” They’re not the seeds in orange but are important in forex trading. Let’s break it down so that even an 11-year-old can understand!
Pips: What’s the Big Deal?
what is pips?
Pips are like tiny steps in the forex world. When you trade currencies, they help you measure how much money you’re making or losing. Suppose you buy 10,000 units of a currency pair, like the EUR/USD, for 1.2000. Then, you sell them at 1.2010. Guess what? You just made a profit of 10 pips! “Pip” stands for “percentage in point” and helps you see even the tiniest price changes.
Table of Contents
Different Sizes of Pips
Pips in forex come in different sizes, like small, medium, and large sodas at a fast-food joint. A “standard lot” is like a large soda and involves 100,000 units. Each pip is worth $10. A “mini lot” is like a medium soda, with 10,000 units, and each pip equals $1. Lastly, a “micro-lot” is a small soda with 1,000 units; each pip is worth $0.10.
Meet the Mini Superhero: Micro Pip
what is Micro Pip
A micro pip is one-tenth of a standard pip, and it’s a tool for gauging the smallest changes in forex rates. These micro movements are crucial as they enable traders to make more precise calculations of their earnings and losses.
Let’s shrink things and meet the mini superhero of forex trading – the “micro pip” or “pipette.” Imagine the EUR/USD pair moves from 1.20000 to 1.20001. That’s a micro pip or a pipette move! It’s like catching the smallest butterfly flaps in the forex jungle.
Micro Pips in Action
Okay, back to your 10,000-unit EUR/USD trade. You bought them at 1.20000 and sold them at 1.20010. You just earned 10 pips, which is also 100 micro pips. If you’re using a micro lot, your profit is a sweet $1. How? Look:
Profit = (10 pips x $0.10 per pip) = $1
But if you’re using a mini lot, it’s a $10 profit:
Profit = (10 pips x $1 per pip) = $10
And if you’re trading with a standard lot, get ready for a $100 profit:
Profit = (10 pips x $10 per pip) = $100
Tiny But Mighty
So, what’s the deal with these micro pips? Well, they help traders be super precise in figuring out their wins and losses. Like a magnifying glass reveals the tiniest details, micro pips let traders see even the smallest changes in the forex world.
In a Nutshell
Pips, pipettes, and micro pips might sound like a mouthful, but they’re the secret sauce in forex trading. They help traders keep score, make smart decisions, and manage their trades like champs. Whether new to the forex game or a pro, understanding these tiny movements will make you a trading rock star in no time!
