Pip

Pip Value
Contents1. Pip Value
2. Direct Rates
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Contributors: Colton, mikea, elementalone

Pip

"Pip" has been said to be short for "Price Interest Point" and "Percentage In Point." Either way, it is the smallest commonly quoted unit in the exchange rate of a currency pair.

When you see a quote for a currency pair, it will probably be a number with four decimal places like 1.3426 ...That fourth decimal place is what we're talking about here. So if 1.0000 goes up to 1.0001, then it has gone up one pip. That's about 1/100th of a percent. This changes in the case of Japanese Yen (JPY) because it is usually quoted to 2 decimal places.

So why do we even do this? Because when you're dealing with a stock, it's easy to look at the Y-axis of your chart and say "This has gone up 30 cents." Currency pairs are dealing with small ratios that aren't easy to see that way. The Y-axis of your chart will be very small decimals. So, looking at the fourth decimal place gives you something to go off of, and we call that a "pip." You'll hear traders say "It went up 23 pips" instead.

As far as calculating how much money you've made on one pip, you can roughly round one pip to $10. That's not always mathematically accurate, but it gives you a good estimate. You can also have a fraction of a pip. As you might imagine, the fifth decimal place is 1/10th of a pip.

Pip Value

How many USD is a pip worth ?

It depends on two things: the Lot Size and the Currency Pair

There are three kinds of rates:

Direct Rates

pairs where USD is the Quote currency . e.g.: eur/usd

Pip Value on Direct Rates: Lot Size x Tick Size

Example :

1 std lot EUR/USD

Pip Value: 100,000 x 0.0001 = USD 10 per pip

consequently, pip value for 1 mini lot = USD 1 per pip; and pip value for 1 micro lot = USD 0.1 (ten cents)


Indirect Rates.- pairs where USD is the Base currency . e.g.: usd/jpy

Pip Value on Indirect Rates: Lot Size x Tick Size / Current Rate

Example :

1 std lot USD/CAD (let´s say current price of usd/cad is 0.99012)

Pip Value: 100,000 x 0.0001 / 0.99012 = USD 10.10 per pip

consequently, pip value for 1 mini lot = USD 1.01 per pip; and pip value for 1 micro lot = USD 0.1 (ten cents)


Crossed Rates.- pairs that don´t have USD . e.g.: gbp/jpy

Pip Value on Crossed Rates: Lot Size x Tick Size x Base Quote to USD / Current Rate

Example : 1 std lot EUR/GBP (let´s say current price of eur/gbp is 0.84680 and Base Quote to USD - that is, eur/usd - is 1.33955)

Pip Value: 100,000 x 0.0001 x 1,339555/ 0.84680 = USD 15.82 per pip

consequently, pip value for 1 mini lot = USD 1.58 per pip; and pip value for 1 micro lot = USD 0.16 (sixteen cents)

 
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