Forex Quote and Pip Value

Pip is short for Price Interest Point, also called points. The most common increment of currencies is the pip. If the exchange rate goes from 1.2576 to 1.2577, that is ONE pip. In mathematical terms, a pip means the last decimal place of a quotation. In a down-to-earth way, the pip is how you calculate your profit or loss. Example: For USD/JPY exchange rate at 120.75 a pip would be 0.01 (the second decimal place).For EUR/USD exchange rate at 1.2385, a pip would be 0.0001 (the fourth decimal place). Each currency has it own value and the pip value is different from one another. It is important to know how to calculate the pip values.   

Pip Value Formula 

Pip divided by the exchange rate = pip value

 By now you are probably thinking “do I really have to work this hard myself? Can’t someone do these calculations for me”? Good news is that nearly all FOREX brokers will provide you with this information automatically, however it is always a good thing to know how things really work.  So in case you don’t want to waste your time calculating pip value yourself, click here to skip this part and move on to the next chapter. For those who decided to take a peek, let’s go straight to examples before you get a major headache!  First, let’s consider examples where US Dollar appears first, meaning that US Dollar is the base currency. 

Examples: 

USD/JPY exchange rate at 120.75

STEP1: Figure out what is 1 pip. There are two places therefore 1 pip would be 0.01 (second decimal place) 

STEP2: Apply pip value formula to calculate pip value.pip divided by the exchange rate = pip value0.01 divided by 120.75 = 0.0000828 

USD/CHF exchange rate at 1.5230 

STEP1: Figure out what is 1 pip. There are four places therefore 1 pip would be 0.0001 (fourth decimal place) 

STEP2: Apply pip value formula to calculate pip value.0.0001 divided by 1.5230 = 0.0000648 

USD/CAD exchange rate at 1.4590 

STEP1: Figure out what is 1 pip. There are four places therefore 1 pip would be 0.0001 (fourth decimal place) 

STEP2: Apply pip value formula to calculate pip value.0.0001 divided by 1.4590 = 0.0000685 

Now let’s consider several examples where the US Dollar does NOT appear first, but you want to calculate US Dollar value anyway. An extra step includes a conversion from base currency value to quote currency value and the conversion formula is 

base currency value x exchange rate = quote currency value 

EUR/USD exchange rate at 1.2301 

STEP1: Figure out what is 1 pip. There are four places therefore 1 pip would be 0.0001 (fourth decimal place) 

STEP2: Apply pip value formula to calculate pip value.0.0001 divided by 1.2301 = EUR 0.0000812 

STEP 3: Since EUR is the base currency in this example, we got EUR pip value, but we want to know US Dollar value. Therefore, we need to get back to US dollars. To do so, we use conversion formula 

base currency value x exchange rate = quote currency value

 0.0000812 x 1.2301 = USD 0.0000998 

GBP/USD exchange rate at 1.7954

STEP 1: Figure out what is 1 pip. There are four places therefore 1 pip would be 0.0001 (fourth decimal place) 

STEP 2: Apply pip value formula to calculate pip value.0.01 divided by 1.7954 = GBP 0.0000556 

STEP 3: Get back to US dollars using conversion formula0.0000556 x 1.7954 = USD 0.0000998 top

FOREX Quote  

FOREX means foreign exchange and it is all about buying and selling currencies simultaneously. That being said lets consider a quote example:  

EUR/USD
BidAsk
1.32761.3281
SellBuy

You can easily outline the following main things: 

  • Base currency= EUR
  • Bid price = 1.3276
  • Ask price = 1.3281
  • When selling Euros, 1 Euro =  1.3276 US Dollar        
  • When buying Euros,  1.3281 US Dollar = 1 Euro
  • Spread = 1.3281-1.3276 = 0.0005
  • Pip=0.0001

 Let’s look at another example and try to outline the main things yourself. No peeking!!! 

EUR/JPY
BidAsk
125.96126.00
SellBuy
  • Base currency= EUR
  • Bid price = 125.96
  • Ask price = 126.00
  • When selling Euros, 1 Euro =  125.96 Japanese Yen  
  • When buying Euros,  126.00 Japanese Yen = 1 Euro
  • Spread = 126.00 -125.96 = 0.04
  • Pip=0.01

How to Calculate a Pip Value? – Pip Value Formula

WRITTEN BY FXIGORIN FOREX TERMS

Table of Contents

Pip and pips are general terms in the trading industry. In this article, we will explain the basic concept.

What is a pip in forex trading?

PIP is the acronym for the phrase “percentage interest point.” It’s also known as a price interest point. A forex pip is the lowest price increase for a given pair. The pip value is a unit of measurement for currency movement in most currency pairs in the forex trade. The pip between two currencies varies. However, it generally equals the fourth decimal place in most currency pairs. For EURUSD or GBPUSD, for example, 0.0001 is one pip.

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Please watch my video to learn how to calculate pip value in dollars for different assets in Metatrader:

The pip value, as you know, is the standard by which a currency pair is compared. This also includes the exchange of currency pairs and the trade size. The significance of pip value is that you can show the amount of exposure and significantly influence your position through pip. The pip value is defined by the pair of currencies, its trade value, and the currency pair’s exchange rate.

To learn how to count pips in the MT4 platform for various symbols, visit our article.

How to calculate pip difference in forex?

To calculate the pip difference in the forex pair, you need to count the decimal places where the last decimal place represents one pip difference. For example, the EURUSD currency pair exchange rate 1.3012 has four decimal places, and each pip has a value of 0.0001. Therefore, from 1.3012 to 1.3013 is one pip difference.  However, some currency pairs like USDJPY have one pip value of 0.01. For example, from 119.20 to 119.21 is one pip difference.

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Now let us calculate the forex pip value:

Pip Value Formula

To calculate the pip value, multiply the Pip value by the Trade Size and divide the result by the Exchange Rate. This gives you the value of one pip in the quote currency (the second currency in the currency pair).

Pip Value = (Pip x Trade Size) / Exchange Rate

Where:

  • Pip is the minor price change a given exchange rate can make, typically the fourth decimal place in most currency pairs (except for the Japanese yen pairs, which use the second decimal place).
  • Trade Size refers to the number of units of currency being traded, which is usually expressed in standard lots (100,000 units), mini lots (10,000 units), or micro lots (1,000 units).
  • Exchange Rate is the current price of the currency pair being traded, usually quoted to four or five decimal places.

The formula works by calculating the value of one pip in the quote currency (the second currency in the currency pair) and multiplying that by the number of pips gained or lost in the trade. The pip value formula considers the trade size and the currency pair’s exchange rate to do this.

For example, let’s say you’re trading a standard lot of 100,000 units of the EUR/USD currency pair at an exchange rate of 1.1800. If the trade moves in your favor by 50 pips, you would calculate the pip value as follows:

Pip Value = (0.0001 x 100,000) / 1.1800 = 8.47 USD

So for every pip the trade moves in your favor, you would earn or lose USD 8.47. On the other hand, if the trade moves against you by 50 pips, you would lose USD 423.50 (USD 8.47 x 50 pips).

How to calculate a pip value in forex?

To calculate the pip value, divide one pip (usually 0.0001 for major currencies) by the currency pair’s current value. Then, in the next step, multiply that number by your lot size: the number of base units you are trading.

For example, if the exchange rate is 1.3, the trading size is one lot, and the currency pair EURUSD, then:

Pip Value = (Pip x Trade Size) / Exchange Rate= (0.0001 x 100,000)/1.3= $13.

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The pip (percentage in point) is the smallest unit of measurement in forex trading. It measures the change in the exchange rate of currency pairs. The pip value is the monetary value of one pip, which varies depending on the currency pair being traded, the size of the trade, and the exchange rate.

To calculate the pip value, you need to follow these steps:

  1. First, determine the currency pair being traded: EUR/USD.
  2. Determine the trade size: 100,000 units of EUR/USD.
  3. Finally, determine the exchange rate: For example, 1.1725.
  4. Determine the pip value in the quote currency (the second currency in the currency pair): To do this, you need to use the following formula: pip value = (0.0001 / exchange rate) x trade size for the above example, the pip value would be:pip value = (0.0001 / 1.1725) x 100,000 = 8.52 USDThis means that for a 100,000 unit trade of EUR/USD with an exchange rate of 1.1725, each pip is worth USD 8.52.

Note that the pip value will differ for different currency pairs and trades of different sizes and exchange rates.

To simplify it, each Forex account will have a certain number of lots and pips. A lot is a collection or the lowest quantum of a currency you will trade. And the pip is the lowest amount that currency can change.

The value of a foreign currency keeps on varying concerning other currencies. And the absolute value varies with different currencies and with a particular currency. The pip shows to what extent a pair of currencies move up and goes down. The value of a pip, therefore, varies across pairs of currencies. This article discusses pip value and the various aspects that go into calculating the pip value.

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