What Does Pip Value Mean?

When all other factors remain the same, a pip move in the relevant foreign exchange rate determines the value of a trading position. Your account’s base currency should be the currency in which a pip’s value is expressed. Thus, the numeric pip value of a position varies depending on the base currency in which it is opened.

A currency pair that does not contain the currency of the account will be subject to a separate exchange rate if you trade in that currency. To compare pip value with pip value of other positions, you need to convert pip value into the accounting currency.

For example, a trade in EUR/GBP would typically result in a higher pip rate than for a trade in U.S. dollars because the pound sterling (GBP) trades at a higher relative value to the U.S. dollar.

Therefore, the margin required to hold a position in EUR/GBP in a full lot of 100,000 euros can be more capital-intensive than holding a position in USD/MXN in a full lot of $100,000 of funds.

With the Mexican peso’s low value, the pip value for a $100,000 trade or full lot in USD/MXN is only about $0.53, compared to $13.17 for a full lot of 100,000 euros in EUR/GBP.

Step-By-Step Calculation with Examples

• Step 1: Determine the size of the pip. Due to the low value of the Japanese yen, 0.0001 is applied to all currency pairs except those containing the Japanese yen, when it’s 0.01.
• Step 2: Calculate the exchange rate.
• Step 3: Calculate the pip value using the following formula:
  Pip value = (pip size / exchange rate) x position size
• Step 4:  Apply the exchange rate to convert the pip value into your accounting currency.

Pip Value Calculations Examples

Continue reading to know how to calculate pips with different currencies.

For pairs with The USD as counter currency

In an account denominated in U.S. dollars, all currency pairs with the U.S. dollar as the counter currency have the same pip values. Euro/U.S. dollar, pound/U.S. dollar, AUD/U.S. dollar, and new Zealand dollar/U.S. dollar are major currency pairs that are based on the U.S. dollar.

As an example, a movement from 1.2000 to 1.2001 would represent a 1 pip rise in EUR/USD, so 0.0001 represents a pip in EUR/USD. In an investment contract of 100,000 euros, this one pip movement would equal a change of $10.  When you trade with U.S. dollars, those would be your pip values.

For EUR/USD, if a pip size of 0.0001 and a spot rate of 1.12034 are available and you have a position size of €100,000, you must use the previous formula shown in Step 3 above:

(0.0001 / 1.12034) X €100,000 = €8.925861791956013

As a result of this calculation, pip value equals €8.925861791956013. Afterwards, you must convert the pip value of €8.925861791956013 into U.S. dollars by multiplying it by 1.12034, which is the EUR/USD exchange rate.

€8.925861791956013 X 1.12034 $/€ = $10

The pip value for a position size of $120,000 at the EUR/USD exchange rate of 1.12304 is €8.5952861791956013 in a euro-denominated account and $10 in a U.S. dollar-denominated account.

Pip Calculation for a Non-USD Account

If a currency listed second in a pair is of the same currency as the account’s funding currency, it’s pip value is fixed. The USD/CAD pair, for example, will be fixed pip if you have a Canadian dollar (CAD) account. Standard lots cost CAD$10, mini lots cost CAD$1, and micro lots cost CAD$0.01.

Dividing the fixed pip rate by the exchange rate yields the pip value when the CAD is listed first. Accordingly, a pip is worth CAD$1.42 for a mini lot (CAD$1 divided by 0.70347), if the exchange rate is 0.70347 between the Canadian dollar and Swiss franc (CAD/CHF).

When dividing by the exchange rate by the Japanese yen (JPY)*, the result must be multiplied by 100, for example, the CAD/JPY*. Due to the decimal place being placed after the eighth (0.0001) rather than the eighth position being placed after the decimal (0.01), the yen’s pip is second.

As an example, if CAD/JPY is priced at 79.941, divide $10 by 79.941, then multiply the result by 100, which gives a pip value of $12.51.

Repeat the procedure with any other account currency to find pip values for currency pairs.

Calculating pip value for cross currency pair

The pip value of a currency pair where neither currency is the account currency is determined by multiplying the standard 10 pip value per full lot by the counter currency/account currency exchange rate, such as the GBP/USD rate in our example.

At the GBP/USD exchange rate of 1.3000, a fully loaded EUR/GBP position of 100,000 euros is worth 13 pips, or $13.

Final words

Pip movements affect both the profit or loss your trading account will produce as well as the currency pair you are trading. Because it affects risk, pip value is important. A lack of understanding what a pip is worth can lead to you risking too much or too little on a trade if you don’t know its value.

Understanding in advance the pips of risk present in each currency pair you trade or intend to trade gives you a better sense of the level or amount of risk in any given currency pair. You can also assess the pip value of a position risk you may have or plan to take by comparing it with your risk appetite and account size.