Calculating the Pip Value for Different Forex Pairs
In foreign exchange (forex) trading, pip value can be a confusing topic. A pip is a unit of measurement for currency movement and is the fourth decimal place in most currency pairs. For example, if the EUR/USD moves from 1.1015 to 1.1016, that's a one pip movement. Most brokers provide fractional pip pricing, so you'll also see a fifth decimal place such as in 1.10165, where the 5 is equal to five-tenths of a pip, or five pipettes.
How much of a profit or loss a pip of movement produces depends on both the currency pair you are trading and the currency you funded your trading account with. Pip value matters because it affects risk. If you don't know how much a pip is worth, you can't precisely calculate the ideal position size for a trade and you may end up risking too much or too little on a trade.
Pip Value Calculation When Trading in a USD Account
The most heavily traded currency pairs in the world involve the U.S. dollar (USD). When USD is listed second in a pair, pip values are fixed and don't change if you have an account funded with U.S. dollars.
The fixed pip amounts are:
- USD$10 for a standard lot, which is 100,000 units of currency.
- USD$1 for a mini lot, which is 10,000 units of currency.
- USD$0.10 for a micro lot, which is 1,000 units of currency.
- USD$0.01 for a nano lot, which is 100 units of currency.
These pip values apply to any pair where the USD is listed second, such as the euro/U.S. dollar (EUR/USD), British pound/U.S. dollar (GBP/USD), Australian dollar/U.S. dollar (AUD/USD), and New Zealand dollar/U.S. dollar (NZD/USD).
If the USD isn't listed second:
- Divide the pip values above by the USD/XXX rate.
For example, to get the pip value of a standard lot for the U.S. dollar/Canadian dollar (USD/CAD) when trading in a USD account, divide USD$10 by the USD/CAD rate. If the USD/CAD rate is 1.34105, the standard lot pip value is USD$7.46, or USD$10 divided by 1.34105.
Pip Value Calculation for a Non-USD Account
Whatever currency the account is funded in, when that currency is listed second in a pair, the pip values are fixed.
For example, if you have a Canadian dollar (CAD) account, any pair that is XXX/CAD, such as the USD/CAD will have a fixed pip value. A standard lot is CAD$10, a mini lot is CAD$1, and a micro lot is CAD$0.10.
To find the value of a pip when the CAD is listed first, divide the fixed pip rate by the exchange rate. For example, if the exchange rate for the Canadian dollar/Swiss franc (CAD/CHF) is 0.70347, a pip is worth CAD$1.42 for a mini lot (CAD$1 divided by 0.70347).
If the pair includes the Japanese yen (JPY)—for example, the CAD/JPY—you must multiply the result by 100 after dividing by the exchange rate. That's because for the yen, a pip is the second place after the decimal (0.01) rather than the fourth (0.0001).
For example, if the CAD/JPY is priced at 79.941, to find out the standard pip value, divide CAD$10 by 79.941, then multiply the result by 100, for a pip value of CAD$12.51.
Go through this process with any account currency to find pip values for pairs that include that currency.
Pip Value For Other Currency Pairs
Not all currency pairs include your account currency. You may have a USD account but want to trade the EUR/GBP. Here's how to figure out the pip value for pairs that don't include your account currency.
The second currency is always fixed if a person has an account in that currency. For example, we know that if a person held a GBP account, then the EUR/GBP pip value is GBP10 for a standard lot, as discussed above. The next step is converting GBP10 to your own currency. If your account is in USD, divide GBP10 by the USD/GBP rate. If the rate is 0.77025, then the pip value is USD$12.98.
If you can only find a "backward," or reciprocal, quote, such as the GBP/USD rate of 1.3152, then divide 1 by the rate to get 0.76034. That is the USD/GBP rate. You can then do the calculation above.
If your account currency is the euro and you want to know the pip value of the AUD/CAD, remember that for a person with a CAD account, a standard lot would be CAD$10 for this pair. Convert that CAD$10 to euros by dividing it by the EUR/CAD rate. If the rate is 1.48132, the standard lot pip value is EUR6.75.
Always consider which currency is providing the pip value: the second currency (YYY). Once you know that, convert the fixed pip value in that currency to your own by dividing it by XXX/YYY, where XXX is your own account currency.