 # Calculate The Value Of A Pip

How To Calculate The Value Of A Pip !

There are many great online calculators that will help you determine the value of a pip, but very few traders can do it on a piece of paper. This is a very short guide that presents you with the formulas you need to calculate the value of a pip, should you choose to do it on your calculator. But first, a few things we need to know…

Base Currency and Quote Currency
Every currency pair is made up of 2 currencies.
The first currency is called the Base Currency. The second currency is called the Quote
Currency.

In the example GBP/USD: GBP is the Base Currency and USD is the Quote Currency.
In the example USD/CAD: USD becomes the Base Currency and CAD is the Quote Currency.

1 unit of the Base Currency is worth the price of the Quote Currency.
If the price of the EUR/USD is 1.4263, this means the 1 Euro is equal to 1.4263 US dollars.
If the price of the USD/JPY is 80.64, this means the 1 US Dollar is equal to 8.064 Yen.

“PIP” is an acronym for “Percentage In Points”. One pip is the smallest move in value a currency pair can make. For non-JPY pairs like AUD/USD, UAS/CAD or GBP/USD for example, the smallest change in price will be 0.0001. There will be 4 places after the decimal.

For JPY pairs, like USD/JPY, EUR/JPY or GBP/JPY, the smallest move these pairs can make is 0.01. There will be only 2 places after the decimal.

In calculating the value of a pip, the value is expressed in US dollars.

The value of a pip will change due to the amount of currency you are trading. You can each lot is a certain amount of currency, the more currency traded, the higher the pip value. We need to know how many of what kind of lots we are trading before we can determine the value of a pip.

1 lot = 100,000                                      1 mini lot = 10,000                                          1 micro lot = 1,000

The Formulas
DIRECT Quotes
Calculating Direct Quote Pip Value

“Direct Quotes” are the currency pairs where the USD is the quote currency (the second currency in the pair). Examples are EUR/USD, GBP/USD, AUD/USD, and NZD/USD.

We’ll refer to the “Tick size” is the smallest possible change in price (1 pip).
The Pip Value for direct quotes is calculated according to the following formula:

Formula: 1 Pip = lot size x tick size
1 Pip Value = lot size(dollar amount being controlled) x tick size(1 pip)

Example for 100,000 GBP/USD contract (1 lot): 1 pip = 100,000 (lot size) x .0001 (tick size) = \$10.00 USD
1 lot of GBP/USD will make each pip worth \$10.00 US Dollars.

INDIRECT Quotes
Calculating Indirect Quote Pip Value

Indirect Quotes are currency pairs where the USD is the Base currency (the first currency in the
pair). Examples are USD/CAD, USD/CHF, USD/JPY.

We’ll refer to the “Tick size” is the smallest possible change in price (1 pip).
The Pip Value for Indirect Quotes is calculated according to the following formula:

Formula: 1 Pip = lot size x tick size / current rate
1 Pip Value = lot size (dollar amount being controlled) x tick size(1 pip) / current price

Example for 100,000 USD/CAD contract currently trading at 0.9649:
1 pip = 100,000 (lot size) x .0001 (tick size) / 0.9649 (current rate) = USD \$10.36 per pip

Example for 100,000 USD/JPY contract currently trading at 80.64:
1 pip = 100,000 (lot size) x .01 (tick size) / 80.64 (current rate) = USD \$12.40 per pip

CROSS Quotes
Calculating Cross Rate Pip Value

There are currency pairs that do not involve the USD currency. These pairs are called Cross Currencies.
Some examples are EUR/GBP, AUD/NZD and CAD/JPY. Even though there is no US dollar in the pair, we have to use the US Dollar in the calculation of the value of these pips.

We’ll refer to the “Tick size” is the smallest possible change in price (1 pip).
The Pip Value for Cross Quotes is calculated according to the following formula:

Formula: Pip = lot size x tick size x base quote / current rate  1 Pip Value = lot size (dollar amount being controlled) x tick size(1 pip) x current base/USD rate / current price

Example for 100,000 EUR/GBP contract currently trading at 0.8882, and EUR/USD currently trading at 1.4263:

1 pip = 100,000 (lot size) x .0001 (tick size) x 1.4263 (EUR/USD base quote) / .8882 (current EUR/GBP) = USD \$16.06 per pip

Example for 100,000 CAD/JPY contract currently trading at 83.81, and USD/CAD currently trading at 0.9617 (important, because it’s a base quote, we have to make USD/CAD turned into CAD/USD. The formula for this is 1/0.9617) = 1.0398:

1 pip = 100,000 (lot size) x .01 (JPY tick size) x 1.0398 (CAD/USD base quote) / 83.81 (current CAD/JPY) = USD \$12.40 per pip Edited by Mr Alex Michel from UK.

If you find that topic is useful , please click on share in your social networks to support Forex winners.

0.00 avg. rating (0% score) - 0 votes

## Online trading indicators – beginners guide

Online trading indicators – beginners guide Online forex trading can be enjoyable and profitable, but …