Forex what is a pip worth

What is a Pip?

What is a Pip? A “pip” is a unit of measurement used to show changes in the rate of a pair. In the image below, a pip is the fourth decimal.

Pips are one of the ways by which traders calculate how much profit they made or lost on a trade. For example, if you enter a long position on GBP/USD at 1.6550 and it moves to 1.6600 by the time you close your position you have made a 50 pip profit.

If you enter a short position at 1.6550 and the price moves up to 1.6600 you lose 50 pips. Remember, short means you want the rate to go down. So, if you short at 1.6550 and price falls to 1.6500, you make 50 pips profit. Below are a few more examples of trades.

Long entry at 172.50.

Profit/loss = +37 pips.

Long entry at 1.6077.

Profit/Loss = -70 pips.

Short entry at 1.3491.

Profit/Loss = +300 pips.

Short entry at 1.0863.

Profit/Loss = +33 pips.

Long entry at 1.4058.

Profit/Loss = -1000 pips.

You may have noticed that in all the examples above, the pip is either in the fourth or second decimal place. For example, on EUR/USD the pip is the fourth decimal, on GBP/JPY the pip is the second decimal. The fourth and second decimal place are the standard in Forex. Virtually every pair you trade will have the pip as either the fourth or second decimal.

Now that you know what a pip is, and how to calculate pip gains and losses, you may be asking yourself “how much money is each pip worth?”

How Much is a Pip Worth?

The value of a pip changes depending on the pair you trade. Calculating the value of a pip is not vital to your success, as a trader, since your broker will automatically calculate the value for you. However, if you’re going to trade, you should know a little about how this works.

On GBP/USD a pip is the fourth decimal place, 0.0001. So, if you enter long at 1.6400 and the rate of GBP/USD moves up to 1.6450, you have made 50 pips, or 0.0050.

Calculating the current value of a pip is easy. Here is the simple formula:

1 pip / exchange rate = value per pip.

Lets take a look at a few examples.

0.0001 / 1.0810 = 0.00009250.

1 PIP = 0.00009250 USD.

Clearly, this is not much money. However, through leverage, $0.00009250 can become a significant amount. You will learn about leverage later.

0.01 / 96.27= 0.0001038.

1 PIP = 0.0001038 USD.

0.0001 / 1.0810 = 0.00009250.

1 PIP = 0.00009250 USD.

In the next two examples, because the base currency is not USD, using the same equation as above we get the value of a pip in the base currency. So for GBP/USD the pip value will be shown in GBP not USD.

However, if you trade in USD you may want the pip value in USD. On any pair, with USD as the quote currency, to get the pip value in USD you simply multiply the pip value by the exchange rate:

pip value x exchange rate = pip value in USD.

0.0001/ 1.6443= 0.00006081.

1 PIP = 0.00006081 GBP.

This is rounded up to 0.0001 USD.

0.0001/ 1.3940= 0.00007173.

1 PIP = 0.00007173 EUR.

This is rounded up to 0.0001 USD.

You will find that all pairs with USD as the quote currency have a pip value of roughly $0.00001 USD.

The next (and thankfully the last) example shows how to calculate the value of a pip, in USD, for pairs that do not have USD as either the base or quote pair.

0.01/ 158.80= 0.00006297.

1 PIP = 0.00006297 GBP.

This time because the quote currency is JPY, multiplying by the exchange rate will give you the pip value in JPY. So to get this to USD you simply take the GBP/USD rate and multiply the pip value by it.

0.00006297 x 1.6443 = 0.0001035.

1 PIP = 0.0001035 USD.

How boring was that? As is said above it is not vital to know this stuff. However, if you’re going to trade Forex, you might as well know how it all works.

So, what about a pipette?

In the last few years, some Forex brokers have started displaying an additional decimal at the end of a currency pairs rate.

This additional decimal is know as a pipette, or a micro pip. A pipette is simply one tenth of a pip. The pipette will appear as either the fifth or third decimal place in a currency pairs rate.

If your broker displays pipettes, do not worry. You can simply ignore the pipette when you are calculating how many pips you have made or lost on a trade.

Now, next time somebody asks you “What is a pip?” or “What is a pipette?”, you can explain it to them. Next I will teach about lots, leverage, and margin.

What is the value of one pip and why are they different between currency pairs?

In forex markets, currency trading is done on some of the world's most powerful currencies. The major currencies traded are the U. S. dollar the Japanese yen, the euro, the British pound and the Canadian dollar.

A currency pair such as EUR/USD, for example, represents a euro and U. S. dollar currency pair. The first currency is the base currency and the second currency is the quote currency. So, to buy EUR/USD at 1.1200 on a trade for 100,000 currency units, you would need to pay US$112,000 (100,000 * 1.12) for 100,000 euros.

Pips relate to the smallest price movement any exchange rate can make. Because currencies are usually quoted to four decimal places, the smallest change in a currency pair would be in the last digit. This would make one pip equal to 1/100th of a percent, or one basis point. For example, if the currency price we quoted earlier changed from 1.1200 to 1.1205, this would be a change of five pips.

[Pips are one of the most fundamental concepts to understand when trading currencies, but there are countless other concepts that day traders need to know to be successful. Investopedia's Become a Day Trader Course will teach you a proven strategy that includes six different types of trades that can be placed using any security in any market.]

What is a Pip?

Swing trading, chart patterns, breakouts, and Elliott wave.

“PIP” stands for Point In Percentage. More simply though, a pip is what we in the FX would consider a “point” for calculating profits and losses.

When trading a mini lot (10k units of currency), each pip is worth roughly one unit of the currency in which your account is denominated. If your account is denominated in USD, for example, each pip (depending on the currency pair) is worth about $1.

In all pairs involving the Japanese Yen (JPY), a pip is the 1/100th place -- 2 places to the right of the decimal. In all other currency pairs, a pip is the 1/10,000 the place -- 4 places to the right of the decimal.

(Created by Jeremy Wagner )

You’ll see that the digits for pips are in a larger font. This makes them easier to see.

Additional transparency is provided through most electronic platforms as each currency pair is quoted with precision to 1/10th of a pip. This fraction of a pip allows price providers to bring spreads down even further as they are not restricted to quoting in full pip increments. This is beneficial to you, the trader, because the spread is a component of your transaction cost.

You’ll notice that earlier in this post, we mentioned that the value of a pip for a 10,000 unit trade is roughly equal to 1 unit of your denominated currency (or $1 if you have a USD account).

Now, let’s identify what the actual value per pip is.

For those who wish to determine the calculation by hand, follow this method below (if you are not interested in the mathematics involved, then proceed to the next article).

First you start with the size of your trade. If you want the value of a pip for a mini lot, you start with 10,000. You then multiply your trade size by one pip for the pair that you are trading.

In this example we are going to calculate the value of a pip for one 10k lot of EUR/USD.

So since I am using 10k mini-lot, I’m starting with 10,000. I multiply 10,000 by .0001 since 1/10,000th is a pip for all pairs (except JPY pairs).

That gets me a value of 1. That will be valued in the “counter currency” (second currency) of the pair that I am trading. In this example, I am trading EUR/USD, so USD is the counter currency of the pair. One pip is worth 1 USD dollar for one 10k lot of EUR/USD.

If my trading account is based in US Dollars, then I will see $1 of profit or loss on my account for every 1 pip move that the EUR/USD makes in the market.

Now, if my trading account is based in Euros (EUR), I would have to convert that $1 USD into Euros. To do so, I just divide by the current EUR/USD exchange rate which at the time of writing is 1.3797. I’m dividing here because a Euro is worth more than a USD, so I know my answer should be less than 1. 1 divided by 1.3797 is 0.7248 Euros. So now I know that if I have a Euro based account, and profit or lose one pip on 1 10k lot of EUR/USD, I will earn or lose 0.7248 Euros.

Let’s do another example of GBP/JPY.

Again we’ll go with a one 10k lot trade.

This time a pip is .01 because it is a JPY pair.

10,000 times .01 is 100. Again, that “100” is in terms of the counter currency, so it is 100 Japanese Yen (JPY).

Now we need to convert that 100 Yen to the denomination of your account. If you have a USD based account, then you take the 100 Yen and divide it by the USD/JPY spot rate, which at the time of this writing was 105.11. That gets you an answer of $0.95 per pip.

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education.

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Pip Value Calculator.

Use this pip value calculator if you want to know a price of a single pip for any Forex traded currency. Use this free Forex tool to calculate and plan your orders when dealing with many or exotic currency pairs. All you need to do is to fill the form below and press the "Calculate" button:

Although knowing the actual value of a pip in the U. S. dollars is trivial for such currency pairs as EUR/USD, GBP/USD, it is quite hard to tell the pip value for these currency pairs if your account is denominated in other currencies, or for any other pairs, which have a base currency other than your account is. These currency pairs also require the knowledge of the bid/ask price to convert the pip value to the account currency.

You might also be interested in our position size calculator. It can help you to calculate the optimal size of the position depending on your stop-loss in pips, risk tolerance and account size.