In the world of forex trading, understanding pip value is essential. Whether you are a beginner learning the ropes or an experienced trader fine-tuning your strategy, knowing how to calculate pip value ensures better risk management and position sizing.
In this article, we’ll break down what a pip is, why pip value matters, and how you can calculate it across different currency pairs.
What is a Pip in Forex?
A pip (Percentage in Point) is the smallest unit of movement in the exchange rate of a currency pair.
- For most pairs (like EUR/USD or GBP/USD), one pip equals 0.0001.
- For pairs involving the Japanese Yen (like USD/JPY), one pip equals 0.01.
Example: If EUR/USD moves from 1.1000 to 1.1001, that’s a movement of 1 pip.
Why Pip Value Matters
- Manage Risk: You know exactly how much money you are risking per pip move.
- Size Positions Accurately: Position sizing depends directly on pip value.
- Compare Currency Pairs: Pip values differ depending on the pair, lot size, and account currency.
Formula to Calculate Pip Value
The general formula is:
Pip Value = (One Pip × Lot Size) / Exchange Rate- One Pip = 0.0001 (for most pairs) or 0.01 (for JPY pairs)
- Lot Size = Standard lot (100,000 units), Mini lot (10,000 units), or Micro lot (1,000 units)
- Exchange Rate = Current market price of the pair
Examples of Pip Value Calculation
1. EUR/USD
- Lot size: 100,000 (1 standard lot)
- One pip = 0.0001
- Exchange rate: 1.1000
Pip Value = (0.0001 × 100,000) / 1.1000 = 9.09 USD
So, each pip is worth $9.09.
2. USD/JPY
- Lot size: 100,000 (1 standard lot)
- One pip = 0.01
- Exchange rate: 145.00
Pip Value = (0.01 × 100,000) / 145.00 = 6.89 USD
So, each pip is worth $6.89.
3. GBP/CHF
- Lot size: 10,000 (mini lot)
- One pip = 0.0001
- Exchange rate: 1.2500
Pip Value = (0.0001 × 10,000) / 1.2500 = 0.80 CHF
So, each pip is worth 0.80 Swiss Francs.
Different Lot Sizes and Pip Value
- Standard Lot (100,000 units): Highest pip value.
- Mini Lot (10,000 units): One-tenth of a standard lot.
- Micro Lot (1,000 units): One-hundredth of a standard lot.
Factors That Affect Pip Value
- Currency Pair: Pip values differ based on whether USD is the base or quote currency.
- Exchange Rate: Pip value changes as the pair’s rate fluctuates.
- Account Currency: If your account is in EUR, GBP, or JPY, pip values need to be converted.
- Lot Size: Larger lots mean higher pip values.
The Easy Way: Use a Pip Value Calculator
While manual calculation is important for understanding, it can be time-consuming and error-prone. The easiest way is to use an online pip calculator.
👉 You can try the free Pip Value Calculator on pipcalculators.com to instantly calculate pip values for any currency pair, lot size, and account currency.
Final Thoughts
- Protect your account from unexpected losses
- Make informed position sizing decisions
- Trade confidently across different currency pairs
Instead of doing complex math every time, save time and reduce errors by using the pip value calculators at pipcalculators.com.