Pip Value Formula
admin on March 29th, 2010
The standard pip value for the
- Determine your account’s currency (in about 90% cases it’s USD). If it’s the same currency as the quote currency of the pair (the second one, which goes after “/”) then proceed to step 4.
- If the account’s currency is different from the quote currency but is the same as the currency pair’s base currency (the first one, which goes before “/”) then check this currency pair’s current Ask rate (the highest of the rates) and proceed to step 5.
- If the account’s currency is different from any of the currencies from the pair of the position, you have to check the current rate of this currency relative to the quote currency of the pair:
- If the currency pair combined of the account’s currency and the quote currency of the position has the account’s currency as the quote currency (second, after “/”) then you should check and remember its current Bid rate (the lowest of the rates).
- If the currency pair combined of the account’s currency and the quote currency of the position has the account’s currency as the base currency (first, before “/”) then you should check and remember its current Ask rate (the highest of the rates).
- Proceed to step 6.
- You should simply multiply the amount of currency units in your position (100,000 for 1 standard lot) by the size of one pip (0.0001 for almost all pairs and 0.01 for almost all pairs quoted in JPY). You’ll get a pip value of 10 currency units per 1 standard lot. The end.
- You should multiply the amount of currency units in your position (100,000 for 1 standard lot) by the size of one pip (0.0001 for almost all pairs and 0.01 for almost all pairs quoted in JPY) and then divide the result by the Ask rate from step 2. The end.
- You should multiply the amount of currency units in your position (100,000 for 1 standard lot) by the size of one pip (0.0001 for almost all pairs and 0.01 for almost all pairs quoted in JPY) and either multiply the result by the Bid rate received in step 3a or divide the result by the Ask rate received in step 3b.
Some examples:
- The easiest case: USD account and EUR/USD position of 1 standard lot – according to step 1 we should proceed to step 4:
100,000 x 0.0001 = 10 (USD). - The medium difficulty: EUR account and EUR/USD position of 1.5 standard lots – according to step 2 we should remember the current Ask rate of EUR/USD (1.3449) and proceed to step 5:
150,000 x 0.0001 = 15; 15 / 1.3449 = 11.15 (EUR). - The difficult case: JPY account and EUR/USD position of 0.7 standard lots – according to step 3a we should remember the current Bid rate of USD/JPY (92.51) and proceed to step 6:
70,000 x 0.0001 = 7; 7 * 92.51 = 647.57 (JPY).
If that sounds too difficult for you or you have to calculate the value of the pip too often, you can use the free
Update: According with the popular demand, I’ve changed the terms to describe the currencies within a pair to the more standard ones.
6 Responses to “Pip Value Formula”
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April 25th, 2010 at 3:10 am
At first I was very confused, because this author calls the SECOND currency of any pair the “Base currency”. This is contrary to generally accepted practice, which is that the FIRST currency in a pair is referred to as the base currency and the second of the pair is the “quote” currency.
I really think this should be edited.
Quoting from Investopedia:
“What Does Base Currency Mean?
The first currency quoted in a currency pair on forex. [... ]
It is sometimes referred to as the “primary currency”.
Investopedia explains Base Currency
For example, if you were looking at the CAD/USD currency pair, the Canadian dollar would be the base currency and the U.S. dollar would be the quote currency. “
April 25th, 2010 at 8:21 am
Dictionary definitions aren’t always good. The only reason I call the second currency the “base currency” is because it’s they currency you spent to position a trade and it’s the currency that you earn/lose from the trade. I guess I’ve explained quite clearly where is which currency in the pair and it’s easy to understand how to calculate the value of the pip despite the reader’s previous concept of the base currency. It’s not the intent of the article to change that concept.
October 21st, 2010 at 1:45 am
which is that the FIRST currency in a pair is referred to as the base currency and the second of the pair is the “quote” currency.
I really think this should be edited.
Quoting from Investopedia:
“What Does Base Currency Mean?
March 29th, 2011 at 6:52 am
This is basic flaw. The base currency is ALWAYS the first currency because it’s always equal to 1. If you’re buying, the exchange rate will tell you how much of the QUOTE currency (second in the pair) will it cost to buy the BASE currency. If you’re shorting, it will tell you how much you will receive in the QUOTE currency for each unit of the BASE!
By calling the second in the pair the base, you’re going to confusie any new trader that reads this article. If you’re going to teach, please get it right!
March 29th, 2011 at 10:23 am
ozfader,
Since so many people find it confusing, I’ve finally changed the terminology in the article
.
June 21st, 2011 at 1:31 pm
the issues of the base and quote current still bewild me and feel not well place but been a newbies in fx, the most one that is peg my net is buy and sell, buy at uptrend, y? not at downtrend,bis in the course of buying and selling, you willing to buy goods when the current reduce to a low rate, and other hand sell it at when the price ascended,i hope written is not out of points.