Quote:
Originally Posted by forexsweety
This is in fact a phenomenon you will see with any currency in which the currency is quoted first (such as EURUSD, GBPUSP, or AUDUSD): the pip value is always $1.00 per 10,000 currency units.
|
I'm confused by that statement.
"... with any currency in which the currency is quoted first ..."
But in the examples given, EURUSD, GBPUSD, or AUDUSD, the USD is quoted second, isn't it?
Quote:
Originally Posted by forexsweety
Using EURUSD as an example, we have:
(.0001/.8942) x EUR10,000 = EUR 1.1183
But we want the pip value in USD, so we then must multiply EUR1.1183 x (EURUSD exchange rate):
EUR 1.1183 x .8942 = $1.00
|
I am trying to work this calculation out with all the units involved and I am not having any luck, maybe someone can enlighten me.
EURUSD = 0.8942. So the conversion factor is: EUR 1 / USD 0.8942.
The equation in the quote becomes: (.0001) * ( EUR 1 / USD 0.8942 ) x EUR 10,000 = EUR 1.1183
Something is wrong here though, because this implies EUR^2 / USD which is clearly not the case. What am I missing?
When I perform a similar calculation using an indirect rate, there are no issues:
suppose JPYUSD = 120.50
one pip = (.01) * (100,000 JPY) * (1 USD / 120.50 JPY) = 8.298 USD...
I think if someone could explain the logic in dividing the pip by the exchange rate I might understand. I know that 0.0001 / 0.8942 gives me the worth of a pip in EUR but I am not clear why....
Thanks,
David