What is a Pip?

A pip is the most common increment of currencies. If the EUR/USD moves from 1.2250 to 1.2251, that is 1 pip. A pip is the last decimal place of a quotation, and it is the means by which you measure your profit or loss.

As each currency has its own value, it is necessary to calculate the value of a pip for that particular currency. With currencies where the US Dollar is quoted first, the calculation follows a certain rule.

Let's take USD/JPY rate at 119.80 as an example. Please note that while most currencies have four decimal places, this currency pair only goes to two decimal places.
In the case of USD/JPY, 1 pip would be .01 and so it would look like this:

USD/JPY:
119.80
.01 divided by exchange rate = pip value
.01 / 119.80 = 0.0000834

At first glance this is a very long figure, but later we will discuss lot size, too.

USD/CHF:
1.5250
.0001 divided by exchange rate = pip value
.0001 / 1.5250 = 0.0000655

USD/CAD:
1.4890
.0001 divided by exchange rate = pip value
.0001 / 1.4890 = 0.00006715

In cases where the US Dollar is not quoted first and we want to get the US Dollar value, we have to add one more step:

EUR/USD:
1.2200
.0001 divided by exchange rate = pip value
so
.0001 / 1.2200 = EUR 0.00008196

Then we need to get back to US Dollars so we add one more calculation:

EUR x Exchange rate
So
0.00008196 x 1.2200 = 0.00009999

When rounded up, it would be 0.0001

GBP/USD:
1.7975
.0001 divided by exchange rate = pip value
So
.0001 / 1.7975 = GBP 0.0000556

We need again to get back to US Dollars so we add another calculation:

GBP x Exchange rate
So
0.0000556 x 1.7975 = 0.0000998
When rounded up it would be 0.0001

You are most probably asking yourself if you need to work all this out on your own. The answer is NO. Almost all forex brokers will automatically do it for you - but it is important for you to know how they do it.

How much is each pip worth?The trader's calculator has all the preset logic and all you have to do is insert your individual parameters.This tool will help you determine the value per pip in your account currency so that you can better manage your risk per trade. All you need is the currency your account is denominated in, the currency pair you are trading, your position size, and the exchange rate asked to calculate the pip value.