Risk warning: Trading is risky. Your capital is at risk. FT Global Ltd is regulated by IFSC.
Risk warning: Trading is risky. Your capital is at risk. FT Global Ltd is regulated by IFSC.

What is a Pip’s Worth? Forex Basics

Forex Educational Video Series

Author: Andreas Thalassinos (BSc, MSc, MSTA, CFTe, MFTA), Head of Education at FXTM.

What is a Pip’s Worth?

So far in this series of videos, we have explained what pips are, how to read currency pairs and the different types of ‘lots’. Now we need to know how to calculate the monetary value of a pip. As a reminder, a pip is the measure of the change in the exchange rate of a currency pair and corresponds to the fourth decimal digit in pairs like the EURUSD, and the second decimal digit in Japanese Yen-based pairs. The formula for calculating how much 1 pip is worth, per 100 000 units (or 1 lot) of the base currency, is Amount of Base Currency X Pips = Amount in Quote Currency. So, for EURUSD for example, the applied formula would look like this: 1 lot (€100,000) X 0.0001 = $10. For Yen-based currency pairs, the result is a little different because the pip’s position is different. The value of 1 pip in USDJPY is 1 lot ($100,000) X 0.01 = ¥1000. Let’s look at a practical example using a trade: a trader buys 1.5 lots of GBPUSD at 1.3030. Once the price rises, for example to 1.3043, he decides to close his position. Now he’s made a profit of 13 pips. The formula in this case would look like this: 1.5 lots (£150,000) X 0.0013 = $195 of profit!

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

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