Formula for calculating foreign exchange point value

2023-07-13
Summary:

Calculating the forex point value is crucial for understanding risk in forex trading. Learn the formula and key considerations for precise calculations.

Foreign exchange point value refers to the minimum unit of exchange rate change in foreign exchange transactions. In the foreign exchange market, the exchange rate of a currency pair fluctuates continuously, and the unit of each fluctuation is called a point (pip). Point value refers to the impact of each point on the value of funds.

Specifically, the foreign exchange point value refers to the change in the transaction value of a currency pair when the exchange rate changes by one unit (i.e., a point) within that currency pair. The size of the point value depends on the specific currency pair and the denomination of the transaction.


For example, suppose the exchange rate of a currency pair is 1.1000 and the transaction volume is 100,000 units. If the exchange rate rises by 10 points to 1.1010, the trading value of this currency pair will increase by 10 points.


The calculation formula for point values can be calculated by traders based on the information provided by the exchange. The size of the point value is very important for traders, as it determines the impact of each fluctuation on profits and losses.


In foreign exchange trading, point value is an important concept, and traders need to understand and calculate point value in order to evaluate risks and returns and develop appropriate trading strategies.


The calculation method for point values is as follows:

1. Calculate the point value of direct currency pairs:

Calculation formula: point value=number of trading hands (lot size) x number of basis points (tick size).

For example, a contract worth 100,000 pounds is a standard hand.

1 point value = 100000 (lot size) x 0.0001 (tick size) = $10 USD.

Calculate the profit and loss (P/L) of direct orders.


2. Calculation method for point values of non-straight disks:

Formula: Point value=number of transactions (lot size) x tick size/current rate.

For example, when purchasing a contract worth 100,000 US dollars against Japanese yen at 120.50,

1 point value = 100000 (lot size) x 0.01 (tick size)/120.50 (current rate) = $8.30.


3. Calculate the point value of cross-market foreign exchange pairs:

Formula: Point value=lot size x tick size x exchange rate between the base currency and the US dollar (base quote)/current rate of the foreign exchange.

For example, when buying a contract worth 100,000 euros to the pound at 0.6750, the exchange rate between Europe and the United States is 1.1840.

1 point value = 100000 (hands) x 0.0001 (basis points) x 1.1840 (Euro US exchange rate) or 0.6750 (Euro GBP exchange rate) = $17.54.

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