What Is Pip Value in Forex Trading

In forex trading, one of the first terms new traders must understand is pip value. This concept shows the exact monetary worth of each pip movement and plays a central role in calculating profit, loss, and risk exposure. While a pip measures the smallest price change, the pip value converts that movement into real money. Without knowing pip value, traders cannot properly size positions, set stop-loss levels, or manage their trading accounts effectively.

Understanding the Concept of a Pip

Before diving into pip value, it is essential to understand what a pip actually represents clearly.

What Is a Pip?

A pip (short for percentage in point or price interest point) is the smallest standardised unit of measurement for price changes in the forex market. It represents the change in the fourth decimal place for most currency pairs.

For example:

• If EUR/USD moves from 1.1000 to 1.1001, that is a movement of 1 pip.
• If GBP/USD rises from 1.2500 to 1.2505, the change is 5 pips.

Pips help traders consistently measure price movements across different currency pairs.

As Investopedia explains, pip value is the monetary worth of a one-pip movement in a forex trade. Knowing this helps traders measure profits and losses accurately.

Pip vs. Pipette

Some brokers also use pipettes, which are fractional pips. A pipette represents a change in the fifth decimal place for most currency pairs.

For example:

• EUR/USD from 1.10000 to 1.10001 is a move of 1 pipette.
• Ten pipettes equal 1 pip.

This extra level of precision is especially useful for scalpers and high-frequency traders.

Why Pips Matter in Forex

Pips are the universal language of forex traders. Whether you are calculating profits, setting stop-loss orders, or discussing strategy with other traders, everything revolves around pips.

Here’s why pips are so important:

1. Measuring Profit and Loss: Traders calculate gains and losses in terms of pips.
2. Standardisation: Pips allow comparison between different currency pairs.
3. Risk Control: Stop-loss and take-profit orders are set in pip distances.

In short, pips are the building blocks of forex trading. But knowing the number of pips is not enough—you need to know how much those pips are worth. That’s where pip value becomes critical.

What Is Pip Value?

Now that you understand what a pip is, the next step is to learn about the value of a pip.

The value of a pip represents the monetary worth of a single pip movement in a forex trade. In simple words, it tells you how much profit or loss you will make if the price moves by one pip in your favour or against you.

For example:

• If you are trading 1 lot of EUR/USD, each pip movement is typically worth $10.
• If you are trading 0.1 lot (mini lot), each pip movement is worth $1.
• If you are trading a 0.01 lot (micro lot), each pip movement is worth $0.10.

This means that the larger the trade size (lot size), the higher the pip worth, and therefore, the greater the potential profit or loss.

Why Is Pip Value Important?

Many beginner traders focus only on how many pips they win or lose. But the reality is that the monetary outcome of those pips depends on the pip value.

Here are the main reasons the pip value is critical in forex:

1. Accurate Profit and Loss Calculation
   Pip value tells you how much money you gain or lose per pip. Without knowing this, you cannot evaluate your performance properly.
2. Risk Management
   Before entering a trade, professional traders always calculate how much money they are risking. PIP value allows you to measure the risk in your account currency.
3. Position Sizing
   Pip value directly affects your position size. For example, if you want to risk $100 on a trade with a 50-pip stop-loss, knowing the pip value helps you determine the correct lot size.
4. Comparing Different Pairs
   Pip values vary across different currency pairs and account currencies. Knowing pip value helps traders adjust positions when switching between EUR/USD, GBP/JPY, or exotic pairs.

The Relationship Between Pip, Lot Size, and Pip Value

Think of pip value as a triangle between three elements:

• Pip (movement unit) – The smallest change in price.
• Lot size (volume) – The amount of the currency you are trading.
• Account currency – The base in which your profit and loss are measured.

The formula for pip value is built on this relationship. A trader who understands this triangle has a strong foundation in forex risk management.

Example 1: EUR/USD

Suppose you are trading 1 standard lot (100,000 units) of EUR/USD.

• A 1 pip movement = $10.
  So, if the price moves 25 pips in your favour, your profit = $250.

Example 2: GBP/USD (Mini Lot)

If you are trading 0.1 lot (10,000 units) of GBP/USD:

• A 1 pip movement = $1.
  So, a 40 pip movement = $40 gain or loss.

Example 3: USD/JPY (Standard Lot)

In JPY pairs, the pip value is calculated differently because the quote has only two decimal places.
For 1 lot of USD/JPY, 1 pip is approximately ¥1,000, which equals about $9.1, depending on the exchange rate.

Key Insight

The pip value is not fixed across all pairs. It depends on:

• The currency pair traded.
• The lot size.
• The account currency.

This is why traders must always calculate pip value before opening positions.

How to Calculate Pip Value

Understanding pip value is one thing, but being able to calculate it is what separates professional traders from beginners. Pip value tells you exactly how much one pip movement is worth in terms of your account currency.

Traders who prefer not to calculate manually often use free online tools such as the FXCM Pip Calculator, which instantly shows pip values for different pairs and lot sizes.

The General Formula for Pip Value

The standard formula used to calculate pip value is:

Pip Value = (One Pip in Decimal Form × Lot Size) ÷ Exchange Rate

Where:

• One Pip in Decimal Form = 0.0001 for most pairs, and 0.01 for JPY pairs.
• Lot Size = the number of base currency units (100,000 for standard lot, 10,000 for mini lot, 1,000 for micro lot).
• Exchange Rate = the current market rate of the currency pair.

Step-by-Step Example: EUR/USD

Let’s say you are trading 1 standard lot (100,000 units) of EUR/USD at a rate of 1.2000.

• One Pip = 0.0001
• Lot Size = 10,000
• Exchange Rate = 1.2500

Pip Value = (0.0001 × 10,000) ÷ 1.2500

Pip Value = 0.80 USD

Example: GBP/USD (Mini Lot)

You are trading 0.1 lot (10,000 units) of GBP/USD at 1.2500.

• One Pip = 0.0001
• Lot Size = 10,000
• Exchange Rate = 1.2500

Pip Value = (0.0001 × 10,000) ÷ 1.2500

Pip Value = 0.80 USD

Example: USD/JPY (Standard Lot)

JPY pairs are slightly different because they are quoted to two decimal places.

Suppose you trade 1 standard lot (100,000 units) of USD/JPY at a rate of 110.00.

• One Pip = 0.01
• Lot Size = 100,000
• Exchange Rate = 110.00

Pip Value = (0.01 × 100,000) ÷ 110.00

Pip Value = 9.09 USD

Example: Cross Currency Pair (EUR/GBP)

Now imagine you trade 1 standard lot (100,000 units) of EUR/GBP at 0.8500. Your account is in USD.

• One Pip = 0.0001
• Lot Size = 100,000
• Exchange Rate = 0.8500

Step 1: Pip Value in GBP = (0.0001 × 100,000) ÷ 0.8500

Pip Value = 11.76 GBP

Step 2: Convert to USD (GBP/USD = 1.3000)

11.76 × 1.3000 = 15.29 USD

Simplified Pip Value Rules

To make things easier, here are quick reference rules:

• For USD-based pairs (e.g., EUR/USD, GBP/USD), the pip value is about $10 per standard lot.
• For JPY pairs, the pip value is about $9–10 per standard lot, depending on the rate.
• For non-USD pairs, you must convert the pip value into your account currency.

A Table of Common Pip Values