The Sensible Guide to Forex: Safer, Smarter Ways to Survive and Prosper from the Start

APPENDIX B

How to Calculate Pip Values and Examples

DEFINITION

A pip is the smallest unit of price movement for any currency pair. For pairs with the JPY as the counter currency, it's 0.01 Yen. For all other pairs, it's 0.0001 of the counter or quote currency.

For example:

• For the EURUSD and most other pairs, movement from 1.4000 to 1.4001 is one pip.
• For the USDJPY, a movement from 80.00 to 80.01 is one pip.

Its cash value is always in terms of the quote currency (the one on the right), which you then convert to whatever currency your account is denominated in, using the currency pair price, which is the actual exchange rate.

CALCULATION

Happily, you needn't go through the following, because there are plenty of free pip calculators you can find online, and the better brokers will provide pip calculators, or their dealing platforms will show pip values in whatever currency your account is denominated.

Still, just so you know, here's the calculation.

The basic formula for calculating a pip value (in the quote or counter currency—the one on the right):

• Pip value per lot equals 1 pip (0.0001 for most currency pairs, or 0.01 if the JPY is the counter currency)
• Divided by the exchange rate or current price of the pair
• Times lot size (in base currency)

Or,

You'll then need to convert the result into the currency in which your account is denominated if that is different from the base ...