What is a Pip’s Worth?
As a reminder, a pip is the measure of the change in the exchange rate of a currency pair. It 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!
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