What is a PIP in Forex Trading?

A PIP acronym is Percentage in Point. These are the minor units to measure fractions of a cent; they provide forex market participants and forex traders with incredible price precision when quoting exchange rates or valuing currencies. Most of the currency pairs are in the fourth decimal. The smallest unit by which a currency exchange rate may vary is called a Percentage in Point (Pip).  

Let’s say the pip value is $1. If you traded or purchased 10,000 euros over the dollar at 1.0801 and sold at 1.0811, you’d make a profit of 10 pips or $10.

Formula: Value Traded x Quote Currency Pip = Pip Value

10,000 x .0001 = 1

Moreover, PIPs are not a single pair of currencies; they’re used globally for forex trading, whether you want to trade USD-INR or EUR-USD.

Note: Japanese yen (JPY) pairs are quoted with two decimal places, marking a notable exception to the four decimal place rule.

Pip Vs Pipette:

As per the forex market, a pip is a standard and smallest unit of measure for changes in an exchange rate, expressed as a move of 0.0001 (1/10,000). A PIP is the smallest price change in increment for most currency pairs.

A pipette equals 1/10 of a pip and is expressed as a fraction of 1/100,000.

A pip relates to movement in the fourth decimal place, whereas a pipette calculates movement in the fifth decimal place.

Currency pip value calculator:

Currency Pair- _______

Ask Price- __________

Position Size (units)- __________

Account Currency-_______

4 Simple Steps for How to Calculate Pips Value

Understanding pips in forex is vital as it helps a forex trader understand the price movement and calculate the trade value.

Step 1: Consider the pip size, i.e. 0.0001 for all currency pairs other and if in the case of Japanese yen when it is 0.01 due to the comparatively low currency value. 

Therefore, the PIP value for the JPY pair will be calculated using 0.01 as the PIP instead of 0.0001. 

Let’s have a look at the formula and see what we get. 

• JPY-INR = 1:58.8200

For example: GBP-INR PIP Value = [.01] x [1/58.8200] = 0.00017001

Step 2: Consider the exchange rate.

Step 3: By using the standard formula for calculating the pip value for a particular position size:

Formula of Pip value = (pip size/exchange rate) x position (lot)size

Step 4:  Convert the pip value into your accounting currency using the current exchange rates.

In a broader sense, calculating the value of a pip involves numerous factors, including the currency pair being traded in the current situation, the size of the trade, and the exchange rate. 

1. Standard calculation: For currency pairs where the USD is the quote currency (e.g., EUR/USD), the pip value is calculated as follows:

Pip Value = (One Pip / Exchange Rate) * position (lot) Size

For Example, let’s say one lot (100,000 units) of EUR/USD at an exchange rate of 1.1050, then the pip value is (0.0001 / 1.1050) * 100,000 = $9.05.

1. In the case of Japanese Yen, The calculation is partially different for pairs like USD/JPY due to Yen’s lower value.

Pip Value = (One Pip / Exchange Rate) * Lot Size

For Example: Let’s take one lot (100,000 units) of USD/JPY at an exchange rate of 110.00; the pip value is (0.01 / 110.00) * 100,000 = ¥909.09. Cross currency pairs: The calculation takes another step to convert the pip value into USD (or the trader’s base currency) for pairs without USD.