A pip, short for percentage in point, is a Forex term that refers to the fourth decimal in all currency pairs, except for Japanese Yen currency pairs, where a pip refers to the second decimal. Before fifth decimal pricing, a pip was the smallest increment of price moves. The fifth decimal is a pipette. Ten pipettes equal one pip. Given the popularity of gold trading in Forex portfolios, we will show you how to calculate pips in gold.
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How to Count Gold Pips
Understanding how to calculate pips in gold begins with counting gold pips, which is straightforward. Like any asset, gold has a bid and an ask price. Traders buy gold at the ask price and sell at the bid price. The difference between both is the spread, which reflects your broker’s markups and earnings.
Here is an example showing how to count gold pips:
- You buy gold at the ask price of 2,029.05.
- You sell gold at the bid price of 2,087.45.
Therefore:
Gold pips = 2,087.45 - 2,029.05 or 58.40
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How to Read Pips on Gold on the MetaTrader Platform?
Since a pip refers to the smallest price increment an asset can move in a four-decimal, three-decimal, or two-decimal quote, reading pips on gold in the MetaTrader 4 platform requires no calculation. Traders can look at the last decimal of the quote, which is a gold pip.
How to calculate pips in gold requires a simple subtraction of the bid price from the ask price for the swap or the entry price of a gold trade from the exit price for a profit/loss calculation.
How to Calculate Pips in Gold
How to calculate pips in gold and the pip value is a two-step process. Many brokers have a pip and profit calculator, and MT4/MT5 display spreads in the trading platform.
Step One - Pip Count:
- Use the pip counting formula shown above.
Step Two - Pip Value Calculation:
- 1.0 lot equals 100 ounces, the standard volume for gold.
Gold Pip Value = (0.01 /gold price) x 100
Using my pip counting example value:
Gold Pip Value = (0.01 /2,029.05) x 100 or 0.0049
Therefore:
- A 1.0 pip move in gold equals $0.0049.
Please Note:
- The pip value changes with the price of gold, increasing with a decrease in price and vice versa.
How to calculate 1.0 lot of XAU/USD?
How to calculate pips in gold requires knowing the lot size. The trading platform lists the contract size per 1.0 lot. For XAU/USD (gold), 1.0 lot equals 100 ounces.
Bottom Line
Calculating pips in gold is a straightforward process. Traders should subtract the bid price from the ask price to get the spread, also known as the cost per trade, and the entry price from the exit price for a profit/loss calculation.
