The value of a pip

Now that you are informed about the meaning of a pip, the next step will be to calculate the value of a pip. The value of a pip depends on the currency pair you want to go trading with. As soon as you are aware of the value of a pip per unit, you can multiply this value by the lot size to consequently be able to calculate the total profit or the total loss.

Although each forex broker automatically calculates the value of a pip, it’s quite necessary to understand how this calculation takes place. In actual practice you’ll immediately see the value of a pip on your forex trading platform.

How to calculate the value of a pip?

The formula which enables you to calculate the value of a pip all by yourself is actually very simple:

The minimal price difference: the current price

In case of all currency pairs the minimal price difference amounts to 0,0001, as you already learned in the article “What is a pip in forex trading”. The only exception to this occurs if the JPY is the counter currency of a currency pair. In that case, the minimal price difference amounts to 0,01.

The result of this calculation is always expressed in the base currency of the currency pair!!!

Example 1

The price of USD/CAD is indexed at 1,0285. What will be the value of one single pip?

The calculation: the minimal price difference : the minimal price = 0,0001:1,0285 = $0,000097. Since USD is the base currency, the result of this calculation is expressed in dollars.

As the trades will never be carried out per unit, but always in standard lots, mini lots and micro lots, we’ll quite easily be able to calculate the value of each single pip as follows:

Standard lot: 100,000 x $0,000097 = $9,70
Mini Lot: 10,000 x $0,000097 = $0,97
Micro Lot: 1,000 x $0,000097 = $0,097

If we involve the lot size into the calculation, the complete formula will be as follows:

(the minimal price difference : the current price) x lot size

Example 2

The price of USD/JPY is indexed at 92,50. What will be the value on one pip in case of a standard lot and in case of a mini lot?

The calculation will be as follows: (the minimal price difference : the current price) x lot size

The value of a pip in case of a standard lot: (0,01:92,50)x100,000 = $10,80
The value of a pip in case of a mini lot: (0,01:92,50)x10,000 = $1,08

Suppose you have an account in EUR and given this situation you’d like to know the value of a pip expressed in EUR. The only thing you need to do in this case is using the price EUR/USD. Suppose this price happens to be 1,2350, you’ll finally end up doing the following calculations:

$10,80 : 1,2350 = €8,74
$1,08 : 1,2350 = €0,87

The value of a pip when USD is the counter currency

Given this situation you don’t need to make complicated calculations, but you can restrict yourself to simply remember the following: When USD is the counter currency, like for instance in case of EUR/USD and GPB/USD, a pip consequently always will have the following values:

Standard Lot: $10,-
Mini Lot: $1
Micro Lot: $0,10

Once again: the calculations of the value of a pip are made by the forex broker, so you don’t need to calculate this manually all by yourself. In case of currency pairs like USD/JPY however it could be fun to roughly calculate by yourself what the values of each pip are going to be.

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