Pip Value Basics: Understanding Your Profit & Loss
Master pip value calculations to know exactly how much each pip movement affects your account. Essential knowledge for every forex trader.
30-Second Summary: What is Pip Value?
Pip value shows how much your account profit/loss changes for each pip movement.
- Varies by currency pair, lot size, account currency, and exchange rate
- Knowing "how much per pip" before trading helps you predict losses
- Use our calculator to get accurate values automatically
What is a Pip and Why Does It Matter?
A pip (Point in Percentage) is the smallest price movement in a currency pair. For most major pairs, a pip is the fourth decimal place (0.0001). Understanding pip value is crucial because it determines how much profit or loss you make for each pip the market moves in your favor or against you.
Many traders focus on entry and exit points but ignore pip values. This leads to poor risk management and unexpected losses. Knowing your pip value before entering a trade is essential for proper position sizing.
Pip vs Pipette (Point)
Many FX currency pairs display prices to the fifth decimal place (common in MT4/MT5).
- • Pip:The standard 1 pip (typically the 4th decimal: 0.0001)
- • Pipette:0.1 pip (the extra digit in 5-digit/3-digit displays). The 5th decimal (0.00001) or 3rd decimal (0.001) for JPY pairs
JPY pairs are an exception.
- • JPY pair pip: 0.01 (2nd decimal)
- • JPY pair pipette: 0.001 (3rd decimal)
When in doubt, use "the standard 1 pip" as your calculation basis, not the minimum price movement (point) shown on your trading screen.
MT4/MT5 often use 5-digit displays (pipettes). For platform-specific display settings and configurations, see our guides on MT4 (MetaTrader 4) usage and download and MT5 (MetaTrader 5) usage and download.
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How to Calculate Pip Value
Pip value is calculated using this basic approach:
Step 1: Calculate Pip Value in Quote Currency
Pip Value in Quote Currency
= Pip Size × Trade Size (in currency units)
Example: EUR/USD with 1 standard lot (100,000)
- • Pip Size: 0.0001
- • 0.0001 × 100,000 = 10 USD
At this point, "1 pip = $10" (USD is the quote currency, so it reflects directly in your account).
Step 2: Convert to Account Currency (if different)
If your account currency differs from the quote currency, convert at the end.
Pip Value in Account Currency
= Pip Value in Quote Currency ÷ (Account Currency / Quote Currency rate)
or
= Pip Value in Quote Currency × (Quote Currency / Account Currency rate)
Use whichever rate format you have available.
Example 1: EUR/USD
Pair: EUR/USD at 1.1000
Trade Size: 100,000 units (1 standard lot)
Pip Size: 0.0001
Account Currency: USD
Pip Value = (0.0001 × 100,000) ÷ 1 = $10
Example 2: GBP/JPY (USD Account)
Pair: GBP/JPY at 150.00
Trade Size: 100,000 (1 standard lot)
Pip Size: 0.01 (JPY pairs)
Account Currency: USD
1. First, pip value in quote currency (JPY)
0.01 × 100,000 = 1,000 JPY
2. Convert to USD account (e.g., USD/JPY = 150.00)
1,000 ÷ 150.00 = ≈ $6.67
Result: 1 pip ≈ $6.67
Key Point: Use the JPY→USD conversion rate (USD/JPY) at the end. Don't divide by the GBP/JPY rate directly.
Verify Real-Time Rates
Pip values change with rates. This is especially noticeable with USD/JPY, cross-currency pairs, and non-USD account currencies.
- Check current rates on WebTrader before trading
- Recalculate if time has passed since your initial calculation
About Bid/Ask Rates
Conversion rates have Bid (sell) and Ask (buy) prices. For precision, use the execution side (Ask for buys, Bid for sells), but if unsure, use the calculator or estimate with the mid rate.
Cross-Currency Pair Conversion (Example: EUR/GBP)
Setup: EUR/GBP at 0.8500, 1 lot (100,000 EUR), pip size 0.0001
1. Pip value in quote currency (GBP)
0.0001 × 100,000 = 10 GBP
Pattern A: GBP/JPY exists (easiest for JPY accounts)
10 GBP × (GBP/JPY) = JPY conversion
Pattern B: No direct pair, use two-step conversion
10 GBP → USD (GBP/USD) → JPY (USD/JPY)
This works too. The key is converting to your account currency at the end.
Account Currency Matters
Your pip value depends on your account currency. If you're trading EUR/USD with a USD account, the calculation is straightforward. But if your account is in EUR, GBP, or another currency, you need an additional conversion step. For complex calculations, use our pip value calculator.
Spread is "Cost," Not "Pip Value"
Spread doesn't change pip value. However, trades start at a disadvantage equal to the spread, so consider it as an "effective cost" when estimating profit/loss and risk.
Integration with Risk Management
Once you know pip value, you can calculate lot size in reverse.
Position Size (Lot)
Position Size = Risk Amount ÷ (Stop Loss Distance (pips) × Pip Value per Pip)
Example: USD account, $100 risk, 50 pip SL, $10 per pip
$100 ÷ (50 × $10) = 0.2 lots
Lot Sizes and Their Impact
| Lot Type | Units | EUR/USD Pip Value | Risk Example |
|---|---|---|---|
| Standard Lot | 100,000 | $10 | 50 pip SL = $500 risk |
| Mini Lot | 10,000 | $1 | 50 pip SL = $50 risk |
| Micro Lot | 1,000 | $0.10 | 50 pip SL = $5 risk |
| Nano Lot | 100 | $0.01 | 50 pip SL = $0.50 risk |
Common Pip Value Mistakes
Mistake #1: Ignoring JPY Pairs
JPY pairs (like USD/JPY, EUR/JPY) use 2 decimal places, not 4. A pip is 0.01, not 0.0001.
Mistake #2: Forgetting Account Currency
Trading EUR/USD with a GBP account? You need to convert the pip value from USD to GBP.
Mistake #3: Not Checking Lot Size
Assuming you're trading a standard lot when you're actually trading mini lots leads to 10x calculation errors.
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Practical Trading Application
Real Trading Scenario
Setup: You want to risk $100 on a EUR/USD trade
Stop Loss: 50 pips from entry
Account: $10,000 USD
Question: What lot size should you trade?
Solution:
$100 risk ÷ 50 pips ÷ $10 per pip = 0.2 lots
This means trading 20,000 units (2 mini lots)
Quick Reference
| Currency Pair Type | Pip Value (1 Lot = 100,000) | Notes |
|---|---|---|
| XXX/USD | ≈ $10/pip | For USD accounts |
| USD/XXX | Varies with rate | USD/JPY ≈ $6.67/pip (when USD/JPY = 150) |
| XXX/JPY | 0.01 (JPY equivalent) | Direct for JPY accounts; conversion needed for others |
| Cross Currency | Conversion required | EUR/GBP, etc. - convert to account currency |
Note: This guide is for FX currency pairs. Precious metals and indices may have different minimum price movements depending on the instrument specifications.
Master Your Pip Values
Understanding pip values is fundamental to successful trading. Combined with proper position sizing and risk management, this knowledge forms the foundation of profitable trading strategies.
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Skip the manual calculations. Our pip value calculator handles all currency pairs and account currencies automatically.
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