A pip is a standardised unit and is the smallest amount by which a currency quote can change. It is usually 0.0001 for U.S.-dollar related currency pairs, and 0.01 for Japanese yen related currency pairs
A pipette equals 1/10 (one tenth) of a pip and it represents a fraction of 1/100,000 (one in hundred thousand).
Calculating the pip value can be confusing. As discussed in the previous topic, a pip is a unit of measurement for currency movement and is the fourth decimal place (0.0001) in most currency pairs.
For instance, if the GBP/USD moves from 1.2972 to 1.2973, that's considered a one pip movement.
As a trader, it is crucial to know how much of a profit or loss a pip movement generates on a particular currency pair that you are trading then that can help to calculate the risk exposure of each trade precisely.
1) To learn how to calculate Pip value when your trading account currency is in US dollars.
If your trading account currency is in USD, calculating the pip value is straightforward when the USD is listed second in a pair, the pip value is fixed and doesn't change; the fixed pip amount is:
$0.10 for a micro lot (1,000)
$1 for a mini lot (10,000)
$10 for a standard lot (100,000)
Let's take a look at the example below to illustrate how to calculate the value of 1 Pip for one standard lot of EUR/USD, where the base currency of the account is in USD:
1 standard lot (100,000) x 0.0001 (1 pip move)= $10
The pip will be valued in the "counter currency" of the pair. Therefore, the above-fixed pip calculations apply to any pair, where the USD is listed as counter currency, such as; EUR/USD, GBP/USD, AUD/USD, NZD/USD.
For all these pairs where the USD is listed second, a pip value equals $1 for a mini lot, 0.1 for a micro lot, and 10 for a standard lot.
However, if the USD isn't listed second, divide the fixed pip value by the USD/XXX rate to get the pip value in the US dollar.
For example, to get the pip value of USD/CAD for a mini lot, divide "1" by the USD/CAD rate to get the pip value in the US dollar. Or, to put it differently, you can move the USD to the counter currency by flipping the pair to CAD/USD following the same formula.
Formula: 1 / 1.3264 = $0.75
The result is $0.75, which is the pip value of USD/CAD in the US dollar.
and for a standard lot, you can do the same;
Formula: 10 / 1.3264 = $7.5
2) To learn how to calculate Pip value when your trading account currency is not in the US dollar.
Whatever currency the account is, if it is listed second in a pair, the pip values are fixed.
For example, if your account capital is in Euro, any pair with Euro as the counter currency (second currency) will have a fixed pip value.
€0.10 for a micro lot is 1,000 worth of currency
€1 for a mini lot which is 10,000 worth of currency
€10 for a standard lot which is 100,000 worth of currency
And to find out the pip value when the Euro is the base currency, simply divide the fixed pip value by the EUR/XXX exchange rate to get the pip value in Euro.
For example, to find the pip value of EUR/GBP for a mini lot, divide 1 (the fixed pip value) by the EUR/GBP exchange rate to get the pip value in Euro.
However, for all the JPY related pairs, because they are quoted out to two decimal places, follow the standard calculation and multiply the result by 10.
For example, if the EUR/JPY is priced at 124.61, to find out the standard pip value, divide ¥10 by 124.61, then multiply the result by 10, and the pip value will be €0.8.
Not all currency pairs include your trading account currency. For example, you may have a USD account but want to trade the NZD/CHF. The counter currency pip value is always fixed if you had an account in that currency. So, for example, if your trading account was in Swiss Franc, the standard pip value of NZD/CHF would have been CHF10, but since your trading account is in USD, convert the CHF10 to your own account currency.
Formula: CHF10 x USD/CHF rate
(You can refer to the table above for more examples)