How to calculate the cost per point in Forex market?

The calculation of the cost per point

The calculation of the price per point depends on the contract size.

The exchange rate of the quote currency to the US dollar and the number of lots.

All calculations below are for 1 point-the minimum price change.

There are three main types of exchange rates: direct exchange rates, indirect exchange rates and cross exchange rates, which are calculated based on exchange rates.

1 point value = (1 point / exchange rate of the quote currency to the US dollar) * lot * contract size per lot (from the trading instrument specifications)

Direct exchange rate- if the U.S. dollar is in the denominator of the quotation (gbp/USD, eur/USD, etc.), the price per 1 lot per 1 point is always 1 $.

Since the exchange rate is a direct exchange rate-the exchange rate of the quote currency to the U.S. dollar will always be 1: USD / USD = 1.

The pip value of GBP/USD gbp/USD: 1 lot gbp/USD: (0,00001/1) * 1 * 100,000 = 1 USD

XAU/USD

XAU/USD pip value: 1 lot xau / USD: (0,01 / 1) * 1 * 100 = 1 USD

Indirect exchange rate- if the U.S. dollar is in the numerator of the quotation (USD/JPY, U.S. dollar/Canadian dollar, etc.), the price per 1 point will be calculated in a different way, because the exchange rate of the quotation currency to the U.S. dollar-is the denominator currency of the exchange rate against the U.S. dollar (USD / ***)

The point value of USD /JPY 1 lot USD/JPY: (0,001 / 104.29) * 1 * 100,000 = 0.96 USD (USD/JPY = 104.29)

Cross exchange rate- if the U.S. dollar is not in the denominator nor in the quotation numerator (EUR/AUD, GBP/JPY, EUR/GBP), the price per 1 point will be calculated by a slightly different formula.

The exchange rate of gbp / cad quotation currency to the US dollar: (USD / CAD) = 1.27329

The point value of 1 lot of gbp / cad: (0,00001 / 1.27329) * 1 * 100,000 = 0.79 USD

The exchange rate of the euro/aud quotation currency to the US dollar: (USD/AUD)-will be the price of AUD/USD = 1 / 0.75383 = 1.326
1 lot of eur / aud point value: (0,00001 / 1.326) * 1 * 100,000 = 0.75 USD

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