We will do some simple arithmetic problems. You have probably heard foreign exchange terms such as “points”, “0.1 points”, and “hands”. We will explain to you what they specifically mean and how they are calculated.

The origin of the calculation of points and point values ​​in foreign exchange transactions-Yuhui International

Don’t be too eager to trade because this knowledge is necessary for all foreign exchange traders. Don’t rush to trade before you understand the value represented by one point and how to calculate profits and losses.

What is the point? What is 0.1?

The unit used to represent the change in value between two currencies is called a “point”. If the euro / dollar exchange rate changes from 1.2250 to 1.2251, the level of change is 1 basis point. The point is the quotation of the last decimal place, and currency pairs other than the yen currency pair are quoted in four decimal places. If it is a currency pair with yen, then the currency quote corresponding to the point should be the second decimal place.

Very important: some brokers ’currency pair quote levels are as small as” 5 digits “and” 3 digits “after the decimal point. This quote is called 0.1 point. For example, if GBP / USD changes from 1.51542 to 1.51543, then the exchange rate changes by 0.1 points.

Since each currency has its own value, it is necessary to calculate a value relative to a particular currency. In the example below, our quote will use 4 decimal places.

The USD quoted price is first, and its calculation method is as follows:

  1. US dollar / Swiss franc reported 1.5250

0.0001 divided by the exchange rate = 1 point value
0.0001 / 1.5250 = 0.0000655

  1. USD / CAD is 1.4890

0.0001 divided by the exchange rate = 1 point value
0.0001 / 1.4890 = 0.00006715

  1. USD / JPY at 119.80

Note that the yen currency pair is only accurate to two decimal places (while most currency pairs are quoted in 4 digits). In this case, 0.01 is 1 point.

0.01 divided by the exchange rate = 1 point of value
0.01 / 119.80 = 0.0000834

Where it is not the US dollar as the first quotation, we want to get the value of the US dollar, we must add a step.

  1. EUR / USD at 1.2200

0.0001 divided by the exchange rate = 1 point value
Therefore, 0.0001 / 1.2200 = 0.00008196 Euro

However, we need to return to the US dollar valuation, so we need to add a calculation program.

Euro value x exchange rate
That is 0.00008196×1.2200 = 0.00009999
The decimal point is 0.0001

  1. GBP / USD at 1.7975

0.0001 divided by the exchange rate = 1 point value
Therefore, 0.0001 / 1.7975 = 0.0000556

However, we need to return to the US dollar valuation, so we need to add a calculation program.

GBP value x exchange rate
That is 0.0000556×1.7975 = 0.0000998
The decimal point is 0.0001

You are probably thinking, “Do I really need to calculate these?” The answer is a big “no”. Almost all foreign exchange brokers will help you calculate these automatically, but for you, it is always good to know how they are calculated