How Much Is A Pip Worth In Forex Trading?

In forex or foreign exchange trading, the value of a pic can be a confusing topic. A pip is a measurement unit for currency movement and is the fourth decimal place in most of the currency pairs. An example of pip movement is if the EUR/USD moves from 1.1014 to 1.1015, then that is a one pip movement. Most brokers give fractional pip pricing, that’s why you will see a fifth decimal place like 1.10164 wherein the 4 is equal to four-tenths of a pip or four pipettes. To know more about pips, this article will answer your question on HOW MUCH IS A PIP WORTH IN FOREX TRADING.

WHY DOES PIP VALUE MATTER?

The value of pip matters because it affects risk. The profit or loss produced by a pip movement depends on the currency that you funded your trading account with and on the pair of currency you are trading. If you do not know how much is the exact worth of a pip, you can’t accurately calculate ideal position sizes for a trade and you might end up risking too little or too much in trading.

WHAT ARE PIPS IN TRADING

A pip or price interest point is a price movement that is small in the exchange rate for a pair in currency. A pip is the smallest price movement although some brokerages measure one more decimal place to allow having fractional pip movements. For currency pairs, a pip is 0.01% which has 4 decimal places right of the whole number.

VALUE CALCULATION OF A PIP WHEN TRADED IN A USD ACCOUNT

The most traded currency pairs globally involve USD or the U.S. dollar. When a US dollar is being listed second in a pair, values of pip are all fixed and won’t change if you have an account funded with USD. The fixed amounts of pip are the following:

* USD 0.01 for a nano lot which is 100 units of currency.
* USD 0.10 for a micro lot which is 1,000 units of currency.
* USD 1 for a mini lot which is 10,000 units of currency.
* USD 10 for a standard lot which is 100,000 units of currency.

These values of pip apply to any pair in which the USD is listed second like the British pound/US dollar (GBP/USD), Euro/US dollar (EUR/USD), New Zealand dollar/US dollar (NZD/USD), and Australian dollar/US dollar (AUD/USD). If the USD is not being listed second, then to know its value, divide the values of pip above by the USD/XXX rate. An example of this is when you want to know the pip value of a standard lot for USD/CAD or US dollar/Canadian dollar when trading in an account that is USD, you need to divide USD 10 by the USD/CAD rate. If the current rate of USD/CAD is 1.34105, the value of standard lot pip is USD 7.46 which is the answer when you divide $10 by 1.34105.

CALCULATION OF PIP VALUE FOR NON-USD ACCOUNT

Whatever currency that particular account is being funded in and when it is listed second in a pair, the values of pip are always fixed. Like when you have a CAD or Canadian dollar account, any pair like USD/CAD will have a fixed value. A micro lot is CAD 0.10, a mini lot is CAD 1, and a standard lot is CAD 10. For you to find the pip value when CAD is listed first, divide the fixed rate of a pip by the current exchange rate. If the exchange rate for the Canadian dollar/Swiss franc (CAD/CHF) is 0.70347, for a mini lot, the pip value is CAD 1.42 which is CAD 1 divided by 0.70347. If the pair involves Japanese yen or JPY, the CAD/JPY must multiply the result by 100 after you divide by the exchange rate. That is because, for the Japanese Yen, a pip is in the 2nd place after the decimal 0.01 instead of having it in the fourth like 0.0001. An example of this is if the CAD/JPY is being priced at 79.941, for you to find the standard value of a pip, divide CAD 10 by 79.941 and multiply the result by 100, for a value of pip that is CAD 12.51.

VALUE OF PIP FOR OTHER CURRENCY PAIRS

No pairs of all currency include your currency account. You might have an account in USD but want to trade the currency EUR/GBP. For you to figure the value of pa for pairs that do not include your currency account, this is the process of how to get its value. The 2nd currency is fixed if you have an account in that currency. For example, if a person has a GBP account, then EUR/GBP pip value is GBP 10 for a lot that is standard as being mentioned above. The next thing is you need to convert GBP 10 to your currency. If you have an account in USD, you will divide GBP 10 by the USD/GBP rate. If the current rate is 0.77025, then the value of a pip is $12.98 in USD. If you can only locate a reciprocal or backward quote like the GBP/USD rate of 1.3152, then you will divide 1 by its rate to have 0.76034 and make the calculation process. If your current account is in Euro and you want to know the value of a pip in AUD/CAD, always remember that for any person with a CAD account, CAD 10 is the standard lot for this pair. Convert the CAD 10 to Euros by dividing it by its rate. If the present rate is 1.48132, then the standard lop value of pa IP is EUR 6.75. Always put into consideration which currency is giving the pip value, it must be the second currency. Once you understand that, you only need to convert the fixed value of a pip in that particular currency to your currency by dividing it by XXX/YYY, wherein the XXX value is your account currency.

HOW DO YOU FIND PIP VALUE FOR A CURRENCY?

Your broker is the most trusted or reliable person who is the source of information about trading products that they offer. Some brokers will offer fractional pips or pipettes, the broker can measure the value if you want to figure out what is the smallest pip movement.