In foreign exchange (forex) trading, the value of a pip can be a confusing topic. A pip is a unit of measurement for currency movement and represents the fourth decimal place in most currency pairs. For example, if the EUR/USD currency pair moves from 1.1015 to 1.1016, that is considered a one pip movement. Most brokers offer fractional pip pricing, so you’ll also see the fifth decimal place like 1.10165, where the number 5 represents five-tenths of a pip or five pips.
Calculating the Pip Value When Trading in a USD Account
The most traded currency pairs in the world include the US dollar (USD). When the US dollar is listed second in the currency pair, the pip values are fixed and do not change if you have a USD-funded account.
The fixed pip values are:
- $10 for a standard lot, which is 100,000 units of currency
- $1 for a mini lot, which is 10,000 units of currency
- $0.10 for a micro lot, which is 1,000 units of currency
- $0.01 for a nano lot, which is 100 units of currency
These values apply to any pair with the US dollar listed second, such as EUR/USD, GBP/USD, AUD/USD, and NZD/USD.
If the US dollar is not listed second, you must divide the pip values mentioned above by the USD/XXX exchange rate.
For example, to get the pip value for a standard lot of the USD/CAD pair when trading in a USD account, divide $10 by the USD/CAD exchange rate. If the USD/CAD rate is 1.34105, then the pip value for a standard lot is $7.46, or $10 divided by 1.34105.
Calculating the Pip Value When Trading in a Non-USD Account
Regardless of the currency in which the account is funded, when that currency is listed second in the currency pair, the pip values are fixed.
For example, if you have a Canadian dollar (CAD) account, any pair that is XXX/CAD, such as USD/CAD, will have a fixed pip value. A standard lot equals $10 CAD, a mini lot equals $1 CAD, and a micro lot equals $0.10 CAD.
To find the pip value when the Canadian dollar is listed first, divide the fixed pip value by the exchange rate. For example, if the exchange rate of CAD/CHF is 0.70347, then the pip is 1.42 CAD for a mini lot ($1 CAD divided by 0.70347).
If the pair includes the Japanese yen (JPY), such as CAD/JPY, you must multiply the result by 100 after dividing by the exchange rate. This is because the pip for the yen is the second digit after the decimal point (0.01) instead of the fourth (0.0001).
For example, if the CAD/JPY rate is 79.941, to find the standard pip value, divide $10 CAD by 79.941, then multiply the result by 100, to get a pip value of $12.51 CAD.
Follow this process with any funding currency for the account to determine pip values for pairs involving that currency.
Pip Value for Other Currency Pairs
Not all currency pairs include your account currency. You may have a USD account but want to trade the EUR/GBP pair. Here’s how to calculate the pip value for pairs that do not involve your account currency.
The second currency is always fixed if a person has an account in that currency. For example, we know that if a person has a GBP account, the pip value for the EUR/GBP pair is £10 for a standard lot, as discussed above. The next step is to convert £10 to your own currency. If your account is in USD, divide £10 by the USD/GBP exchange rate. If the exchange rate is 0.77025, then the pip value would be $12.98.
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If you cannot find an “inverse” quote, such as the GBP/USD exchange rate of 1.3152, divide 1 by the price to get 0.76034. This is the USD/GBP rate. You can then perform the calculation mentioned above.
If your currency of account is the euro, and you want to know the pip value for the AUD/CAD currency pair, remember that for someone with a Canadian dollar account, the standard lot will be worth 10 Canadian dollars for this pair. Convert that 10 Canadian dollars to euros by dividing it by the EUR/CAD exchange rate. If the exchange rate is 1.48132, then the pip value for the standard lot is 6.75 euros.
Always keep in mind which currency provides the pip value: the second currency (YYY). Once you know that, convert the fixed pip value in that currency to your own currency by dividing it by XXX/YYY, where XXX is your account currency.
Frequently Asked Questions (FAQs)
What is a pip in trading?
A pip is the smallest price movement in the exchange rate of a currency pair. For most currency pairs, a pip is equal to 0.01% (four decimal places to the right of the whole number). A pip is sometimes the smallest possible price movement, although some brokers measure an additional decimal place to allow for fractional pip movements.
How can I find out the pip value for a specific currency?
Your broker is the most reliable source of information about the trading products they offer. Some brokers provide fractional pips (“pipettes”), so you will want to know the smallest movement your broker measures.
Source: https://www.thebalancemoney.com/calculating-pip-value-in-forex-pairs-1031022
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