Values and Examples on how to Calculate Pip
Definition
For any currency pair, a pip is the smallest unit of price fluctuation. It’s 0.01 Yen for pairs with the JPY as the counter currency. It’s 0.0001 of the counter or quotation currency for all other pairs.
For example:
For the EURUSD and most other pairs, movement from 1.4000 to 1.4001 is one pip.
For the USDJPY, a movement from 80.00 to 80.01 is one pip.
Its cash value is always expressed in terms of the quotation currency (the one on the right), which you then convert to the currency in which your account is denominated using the currency pair price, which is the current exchange rate.
Calculation
Fortunately, you won’t have to read any of this because there are dozens of free pip calculators available online, and their trading systems will display pip values in whichever currency your account is denominated in.
Still, just in case you’re curious, here’s the math.
The following is the basic formula for computing a pip value (in quote or counter currency—the right):
Pip value per lot equals 1 pip (0.0001 for most currency pairs, or 0.01 if the JPY is the counter currency)
Divided by the exchange rate or current price of the pair Times lot size (in base currency)
Or,
(1 pip/exchange rate or price of the pair)
lot size [in base currency—the one on the left]
pip value in the quote currency [the one on the right]
If your account is denominated in a currency other than the base currency, you’ll need to translate the result into that currency. (All of this will be evident in the examples that follow.)
A standard lot size for the base currency is 100,000 units (the one on the left). Mini accounts with a lot size of 10,000 units and micro accounts with a lot size of 1,000 units are available from most online retail brokers.
Example: EURUSD
Assuming a standard 100,000 lot size, and EURUSD price of 1.4000, account denominated in USD:
(0 0001 1 4000) 100,000 $7 14 pip for a standard lot ($0 74 pip for a mini lot, $0 074 pip for a micro lot)
If you are trading 3 lots, each pip would be worth 3 times that amount. If your account is denominated in USD, you’d be finished.
If it is in EUR or JPY, then you’d need to convert the $7.14 into that currency.
For example, if the account is denominated in EUR, then:
$7 14 1 4000 dollars per Euro €10 00 pip standard lot
€1 00 pip mini lot €0 1000 per micro lot.
Handy Rule of Tens
Pip values are in units of 10 when the account is denominated in the base currency (except when the JPY is the counter or quote currency).
When the account is denominated in the base currency, the pip value is as follows:
Standard (100,000 lots base currency): 10 units of the currency in which your account is denominated.
Mini (10,000 lots base currency): 1 unit of the currency in which your account is denominated.
Micro (1,000 lots base currency): 0.10 units of the currency in which your account is denominated.
For example, if the account is denominated in Euros, each pip would be worth €10 for a standard lot size, €1 for a mini lot, and €0.1 for a micro lot in the EURUSD example above.
The pip value of the USDCAD in a USD-denominated account would be $10 per regular lot, $1.00 for a mini lot, and $0.1000 for a micro lot for any currency pair in which the USD is the base currency (with the majors, this only happens with the USDJPY and USDCAD).
Because the base currencies are usually EUR or GBP, this rule is useful for those who trade the big pairs with EUR or GBP denominated accounts. As the basic currency, the EUR has precedence over all others, followed by the GBP. As a result, the EURGBP is the only major currency pair in which the GBP serves as the quotation or counter currency.
Example: USDCAD
Assuming a standard 100,000 lot size, and USDCAD price of 1.01935, de- nominated in USD:
(0 0001 1 01935) 100 000 10 1935 CAD pip
Divide that value by the 1.01935, and you get $10/pip for a standard lot size,
$1 for a mini, and $0.10 for a micro account.
Example: JPY
The exception to this rule occurs when the JPY is the quote currency (all the time with the majors) because pips are in increments of 0.01 not 0.0001.
Assuming a standard 100,000 lot size, and USDJPY price of 80, account denominated in USD:
0 01 80 100,000
12 50 standard lot 1 25 pip mini lot 0 125 pip per micro lot
Converting that to USD: 12.5/80 $0.15625/pip for a standard lot,
$0.01562/pip for a micro lot, and so on.
Cross-currency pip calculations will necessitate additional computations in addition to those listed above.