We have already introduced the “pip” as a forex term. But is its value different depending on the currency pair we are trading? The short answer is “yes”. Let’s try to calculate the value of one pip for the EUR/USD pair at quotes of 1.1500:

1 pip = a change of 0.0001 in the exchange rate (e.g., from 1.1500 to 1.1501 or to 1.1499).

1 pip value = 0.0001/1.1500 = 0,000087 euro.

However, this value does not tell us much without being compared to the currency of our account and adjusted for the volume traded. Let’s assume that our account is denominated in dollars and we have taken a long position in EUR/USD of 1 mini lot (10,000 units). To find out how much our balance will change with a change of one pip in the pair, we need to convert the above value (0,000087) to the currency of our account and multiply by the traded volume.

So, 0,000087 х 1.1500 х 10 000 = 1 dollar. Our account will increase or decrease by \$1 when the exchange rate changes by one pip.

It is obvious that when the quote currency (the second one in the pair) is identical to that of the account (USD), one pip will always equal one unit of it (1 dollar per mini lot in this case).

Let’s look at another example:

Account currency: EUR

Lot: Standard (100,000 units)

Current exchange rate USD/JPY: 121.15

Current exchange rate EUR/USD: 1.2000

1 pip value per 100,000 units traded = (0.01/121.15) х 100 000 = USD 8.25

(*reminder – one pip in Japanese yen pairs is reflected in the second decimal place)

In order to understand the impact of a 1 pip movement in the USD/JPY pair on our euro account, we will need to convert dollars into euros at the current rate, namely:

= 8.25/1.2000 = EUR 6,875. A change of one pip in USD/JPY will increase/decrease our account by EUR 6,875.

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