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March 26, 2018

Question:How to calculate "Pip Value"?

Answer:

In major pairs quoted against the US dollar, we calculate the value of a PIP as follows:

The EURUSD has an exchange rate of 1.3130. If 1 pip = 0.0001, we divide 0.0001 by 1.3130.

Which gives us a pip value of 0.0000761 Euros.

Let’s turn this into a Forex deal, to see what the pip would represent in either a profit or loss.

Deal 1:

Sell €100,000 worth of EUR/USD and 1.3130.

Pip value in Euro terms is 0.0000761 * 100,000 = €7.61, or exactly $10.

If the deal is closed at 1.3120 with 10 pip profit the total profit would be €76.10 or $100.

Deal 2:

Buy $50,000 worth of USD/JPY at 77.60.

Pip value in dollar terms is 0.01 / 77.60 * 50,000 = $6.44 or exactly 500 yen.

If the deal is closed at 77.50 with a 10 Pip loss, the total loss will be $64.43 or 5,000 Japanese yen.

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