I am studying pip formulas until they are automatic for me. The following site has been the most helpful:
http://www.forexdiscussion.com/cross-rates-pips-figure/
This site explains how the formulas were derived rather than just presenting them. Great. Of course I'm still confused...
The site states:
I've been looking at the units (currency types) using simple high-school algebra to cancel them out. I've seen the units cancel on all formulas except for the one above. Breaking it down:
Amount of deal: This is in base_currency. Lot sizes refer to base.
Value of point: This is quote_currency, per the definition.
Point: This must have units of quote/base but... why?
A few examples:
EX 1.
One 10k lot of EUR/USD (any exchange rate):
Amount of deal: EUR 10,000
Point: 0.0001
Value of point: USD 10 (we know this b/c USD is quote & 10k lot size)
Without units the calculation works fine:
(10,000) x (0.0001) = 10
With units the calculation becomes:
(EUR 10,000) x (0.0001) = USD 10 ... what?
EX 2.
One 10k lot of USD/CAD (1.0091):
Amount of deal: USD 10,000
Point: 0.0001
Value of point = (USD 10,000) x (0.0001) x (USD 1 / CAD 1.0091) = USD 0.99
Thanks,
Forexwindo
http://www.forexdiscussion.com/cross-rates-pips-figure/
This site explains how the formulas were derived rather than just presenting them. Great. Of course I'm still confused...
The site states:
QuoteDislikedValue of the point = Amount of deal * Point
When using this formula, you get the results of calculations in the quoted currency
Amount of deal: This is in base_currency. Lot sizes refer to base.
Value of point: This is quote_currency, per the definition.
Point: This must have units of quote/base but... why?
A few examples:
EX 1.
One 10k lot of EUR/USD (any exchange rate):
Amount of deal: EUR 10,000
Point: 0.0001
Value of point: USD 10 (we know this b/c USD is quote & 10k lot size)
Without units the calculation works fine:
(10,000) x (0.0001) = 10
With units the calculation becomes:
(EUR 10,000) x (0.0001) = USD 10 ... what?
EX 2.
One 10k lot of USD/CAD (1.0091):
Amount of deal: USD 10,000
Point: 0.0001
Value of point = (USD 10,000) x (0.0001) x (USD 1 / CAD 1.0091) = USD 0.99
Thanks,
Forexwindo