Key Takeaways
- PIPs in Forex represent the smallest change in the price of a quote asset, usually to the last decimal place in the exchange’s quote.
- Pips value enables Forex and commodity traders to easily calculate their profit/loss in relation to small changes in the asset’s value.
- Pips for Gold may vary based on the lot size and the brokerage’s terms.
Even for an experienced Forex trader, the term ‘PIPs’ can be quite complex. You’d wonder why common percentages or regular fractional numerals aren’t used on these platforms. However, Pips are a gimmicky expression and easier to use when you have a good understanding of them. Not to worry, this article explains what pips are and how you can count pips while trading gold.
What Is a Pip in Forex and Gold?
PIPs is an acronym for Percentage in Points. It is a standard expression for the smallest unit of price change in trading instruments. Conversely, a PIPETTE is an even smaller expression of this change. A pipette is one-tenth of a Pip (that is, 1 PIP/10).
Pips replace the bulky percentage calculations and help traders measure changes in value and calculate profits or losses more easily. This system is used in Forex, commodity trading, and a few other traditional trading platforms.
Pip Definition in Currency Pairs
For currency pairs, pips are usually the last decimal place in the quote price. For instance, in EUR/USD, a pip is the fourth decimal place (0.0001). For example, if EUR/USD moves from 1.1050 to 1.1051, that's a 1-pip increase. For pairs involving the Japanese yen, such as USD/JPY, a pip is the second decimal place (0.01). If USD/JPY shifts from 109.50 to 109.51, it's 1 pip.
What a Pip Means in Gold (XAUUSD)
XAUUSD tracks the price of one ounce of gold, representing a micro-lot. A PIP in a micro-lot of gold is a $0.01 change in the price of Gold. For instance, if Gold moves from $5,070.00 to $5,070.01, that’s one full PIP. This may differ across brokerages depending on their base lot size.
How to Count Pips in Gold (XAUUSD)
Here’s how you can calculate pips in gold. Below is a breakdown of a formula for how to count them alongside examples for both long and short trades.
Formula for Counting Gold Pips
The general formula for counting gold PIPs is:
Number of Pips = (Exit price – Entry price)/ (Brokerage’s PIP in USD)
For instance, if gold moves from $5,070.20 to $5,070.25 and the brokerage’s PIP for a micro-lot is $0.01
Number of Pips = (5,070.25 – 5,070.20)/0.01 = 0.05/0.01 = 5pips
Please note: The Pips may vary depending on your position.
Long Trade Example
When you are long on Gold:
Pip count = (Exit price – Entry price)/ (Brokerage’s PIP in USD)
For instance, if you buy Gold at $5,070.0 and sell at $5,071.0 and the brokerage’s PIP for a micro-lot is $0.01
PIP count = (5,070 – 5,071)/0.01 = 1/0.01 = 100pips
Short Trade Example
When you are short on Gold:
Pip count = (Entry – Exit price)/ (Brokerage’s PIP in USD)
For instance, if you short Gold at $5,071.0 and sell at $5,070.0 and the brokerage’s PIP for a micro-lot is $0.01
PIP count = (5,071 – 5,070)/0.01 = 1/0.01 = 100pips
Calculating Pip Values in Gold
The Pip value in Gold is the dollar value of every Pip move. It determines the monetary impact of each pip movement. The pip value for your position is based on the lot size and contract specifications.
Formula for Pip Value
PIP value is calculated as
Lot Size * Pip
For instance, the value of one Pip move for a 50-ounce lot is
50 * 0.01 = $0.5
Gold Lot Sizes
Gold trading platforms and brokerages use different base lot sizes. Gold lot sizes are standardized as follows:
- Standard Lot = 100 ounces of Gold
- Mini Lot = 10 ounces of Gold
- Micro Lot = 1 ounce of Gold
Pip Value Formula for XAUUSD
XAUUSD is quoted as the price of one ounce of Gold. It tracks the price of a mini lot in regular gold trading. Therefore, the Pip value for XAUUSD is calculated as
Pip value = Lot Size * 0.01 * number of pips
Pip Value Examples for Different Lot Sizes
Here’s the pip value for different lot sizes:
- Standard lot (100 ounces): 1 pip ≈ $1
- Mini lot (10 ounces): 1 pip ≈ $0.10
- Micro lot (1 ounce): 1 pip ≈ $0.01
For a 200-pip move on a standard lot:
Profit/Loss = 100 * $0.1 * 200 = $200.
How Many Pips Is a $1 Move in Gold?
In Gold trading, a single pip represents a $0.01 (1 cent) change in the price. Therefore, a $1.00 move in the price of gold (XAUUSD) or a mini lot is equal to 100 pips. For a standard lot (100 ounces), each 1-pip move ($0.01) equates to $1 in profit or loss.
How Gold Prices Are Quoted
Gold Prices are quoted as the value of one ounce of Gold in USD, usually to two decimal places.
Examples of Pip Moves in XAUUSD
Here are some examples of Pip moves in XAUUSD
- 0.01 change (e.g., $5,070.00 to $5,070.01) = 1 pip
- 1.00 change (e.g., $5,071.00 to $5,071.00) = 100 pips
Tips to Monitor Gold Pips Effectively
As a Gold trader, effectively monitoring Pips is important for accurately estimating your profit and loss and making data-driven trading decisions. Here’s how you can monitor Gold Pips effectively:
Use Technical Monitoring Tools
Moving Averages (50/200 SMA) to determine the trend, Bollinger Bands for volatility, and RSI to identify overbought/oversold and quick-reversal points.
Set Up Price Alerts
Set alerts in your trading platform for key support and resistance levels, and for major price shifts
Verify your brokerage’s pip specifications
Check your broker's contract specs. Some brokerages define 1 pip as 0.1, while others define it as 0.01. When overlooked, these can lead to massive miscalculations
Use Micro Lots
1 pip move for a micro lot is only a $0.01 change in price; this has a small, low-risk monetary impact and is recommended for learners or precautionary traders.
Monitor USD’s Strength
As Gold is priced in USD, a stronger dollar typically pushes gold prices down, while a weaker dollar pushes them up.
How to Calculate Profit and Loss in Gold Using Pips
To calculate your profit or loss in Gold using Pips
- First, identify your exit and entry levels
- Calculate the pips according to your position (long or short) as explained earlier.
- Positive pips indicate profit, negative pips indicate a loss
- Calculate your Pip value as Lot size * 0.01 * Number of pips.
The product is your profit or loss.
How to Read Gold Pips on MetaTrader (MT4/MT5)
In MetaTrader 4 and MetaTrader 5, gold quotes are shown to two decimal places; the last digit is the pip.
- Click the scroll wheel (or Ctrl+F) to enable the crosshair.
- Using the crosshair feature, measure pips between points on the chart.
- Right-click in the Terminal window's Profit column and select "As points" for point view.
- The points are shown as pipettes; divide by 10 to obtain the pips.
Key Factors that Influence Gold Pip Movements
Gold pips fluctuate alongside changes in gold's value. Therefore, factors that influence the price of Gold are also responsible for Gold Pip movements. They include:
- Mainstream economic policies and indicators: Economic policies like increasing interest rates and indicators like inflation, GDP, and unemployment data may affect the value of gold and influence the Gold pip movement. Rising interest rates often decrease gold demand because gold pays no interest, making yield-bearing assets more attractive
- Geopolitical unrest and uncertainty: War, political instability, or financial crises prompt investors to rush into safe-haven assets, driving up gold prices.
- USD’s strength: Gold is priced in U.S. dollars. A stronger dollar generally makes gold cheaper, pushing prices lower, while a weaker dollar boosts gold prices.
- Supply and Demand dynamics: Albeit a relatively stable supply, the fluctuating demand for Gold jewelry, technology, and investment (ETFs) drives price volatility.
Gold Pip Strategies to Explore
Here are some strategies to explore when trading movements in Gold pips:
Breakout Strategy
Monitor resistance and support levels for breakouts or price drops, respectively. The price usually surges when gold breaks above a resistance level or drops below a support level.
Trend-following Strategy
Use technical indicators, such as moving averages across multiple timeframes, to confirm the overall trend direction for higher-probability trades.
Scalping
Trade periodic price jerks for small but accumulating profits during periods of high volatility.
Support and Resistance Trading
Identifying key support and resistance levels to enter trades in anticipation of reversals or continuations.
News-based Strategy
Follow breaking news and emerging updates that may affect gold prices or the strength of the USD, and trade accordingly.
XAUUSD Pip Calculator and Tools
Calculating pips manually can be tedious. The metrics differ across commodity and currency pairs. A Pips calculator can help with fast and accurate calculations of the number of Pips for the XAUUSD pair and the pip value. However, verify that the calculator and your brokerage or trading platform use the same pip.
Common Mistakes When Calculating Pips in Gold
Here are some common mistakes traders make when calculating pips in Gold
Overlooking Broker Variations
Pip and pip values may differ across brokerages. While some use $0.01 per pip, others may use $0.1. Verify the exact figure for precision.
Confusing Pips with Points/Pipettes
Brokers may also present their quotes in points or pipettes. Pipettes and points are one-tenth of a pip. Verify this and adjust to avoid errors.
Misunderstanding Lot Sizes
Traders often mistake 100 pips to mean $100, ignoring that profit depends heavily on contract size. Note the lot sizing and relative pip value while calculating.
Ignoring Non-USD Conversions
Pips are usually quoted in USD; however, depending on your platform or region, this may be presented in a different currency. Ensure you convert the value to USD before calculating the pip value, or calculate proportionately.
Practical Tips for Gold Traders
Here are a few tips that may improve your Gold trading strategy:
- As a beginner, start with micro-lots in a micro account to minimize risk while learning pip impacts.
- Trade during high-volume sessions (London/New York overlap) for better liquidity.
- Use 1-2% risk per trade; calculate based on pip value and stop-loss distance.
- Avoid emotional trading. Combine technical and fundamental analysis to make balanced and data-driven trading decisions.
- If available, use demo accounts to test your trading strategy in a zero-cost environment before live trading.
Bottom Line
Pips convert price moves to flexible metrics that are easy to calculate. It presents a numerical representation of value changes and a straightforward conversion method. Regardless, pips are easy to misunderstand or misrepresent due to differences in standards. When used properly, it provides a better representation of value progression, allowing Gold traders to make more accurate, precise estimates. Follow the calculations presented in the article and tips for accuracy and improved Gold trading strategies.