Course 5 Position size · Lesson 8 of 13

Pip Value

Pip value is the amount of money one pip of movement is worth on a given position, in your account currency. For a pair quoted in your account currency it is simply the position size times the pip size: 100,000 units times 0.0001 is 10 dollars per pip on a standard lot of EUR/USD in a dollar account. For other pairs it must be converted through the exchange rate, and getting it right is what makes the position size calculation work.

What you'll learn

  • Calculate pip value for USD-quoted pairs
  • Convert pip value for pairs quoted in other currencies
  • Apply pip value to risk

The basic formula

Pip value equals position size in units times pip size, in the quote currency. One standard lot of EUR/USD: 100,000 times 0.0001 equals 10 dollars. One standard lot of USD/JPY: 100,000 times 0.01 equals 1,000 yen. If your account is in the quote currency, that is the answer. If not, convert.

Converting

SituationMethodExample, USD account
Quote currency is your account currencyNo conversionEUR/USD: 10 dollars per lot
Base currency is your account currencyDivide by the pair's priceUSD/JPY at 150.00: 1,000 yen divided by 150 is 6.67 dollars per lot
NeitherConvert the quote currency at its rate against your account currencyEUR/GBP: 10 pounds, times GBP/USD at 1.25, is 12.50 dollars per lot

Why it matters

Risk per trade is stop distance in pips times pip value. If you assume 10 dollars per pip on every pair, a GBP/JPY trade with a 40-pip stop looks like a 400-dollar risk when it may be 270 or 530 depending on the rate. The pip value calculator does the conversion for every pair and lot size; use it until the numbers are familiar, and keep using it for crosses.

Pip value on gold and indices

Brokers define a pip or point on gold and indices in the symbol specification, and the values differ between brokers. A point on a US index CFD might be worth 1 dollar per lot at one broker and 10 at another. Never carry a pip value from one instrument to another.

Example: A cross pair in a dollar account

You trade 0.5 lots of EUR/GBP in a USD account with GBP/USD at 1.2500. Pip value in pounds: 50,000 times 0.0001 is 5 pounds. In dollars: 5 times 1.25 is 6.25 dollars per pip. A 30-pip stop risks 187.50 dollars. If you had assumed 5 dollars per pip you would have underestimated the risk by a quarter.

Key takeaways

  • Pip value is units times pip size, in the quote currency.
  • Convert when the quote currency is not your account currency.
  • Risk per trade equals stop pips times pip value.
  • Gold and index point values are broker-specific.

Knowledge check

  1. One mini lot of USD/CAD at 1.3500 in a USD account. Pip value?

Glossary

Guides

Tools

Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.

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