Pip value can be a bit confusing, especially if we’re talking about the newbies in forex trading.
A pip is the unit of measure that calculates the currency movement. It is the 4th decimal that’s placed in many currency pairs. Let’s take a concrete example: if EUR/USD moved from 1.1015 to 1.1016, that’s one pip. There are some brokers that give fractional pip pricing. In these cases, you’ll see a fifth decimal place – 1.10165 – the five from there represents a half pip. Forex calculators like currency convertor, lot size and PIP value calculators can come in handy in this matter.
A pip movement can cause loss or profit, but it depends on the currency pair that you’re trading and on the currency that you opened your account on.
Why does the pip matter?
If you have no idea what is the pip value, then you won’t be able to calculate the ideal forex position size that you need for a trade. In these cases, you can risk up too much, or too little when it comes to a trade.
How to calculate it when trading a USD account
It’s not a surprise that the most traded currency pair in the whole world has the US dollar in it. If the USD gets listed as the second one in a pair, the pip value is fixed, and it won’t charge, that if you have a USD dollar account.
The fixed pip has $10 for a standard lot that has 100,000 currency, $1 for a mini lot that has 10,000 currency and $0.10 for a micro lot that has 1,000 currency. Again, these only apply if the USA is listed second (for example, EUR/USD, AUD/USD).
If the USD in not listed the second one, you need to divide the values of the pip written above by the USD/XXX rate.
Let’s say that you want to get the pip value of a standard lot for USD/CAD. When trading a USD account, you should divide $10 by the USD/CAD rate. So if the rate of the USD/CAD is 1.2500, the pip value of the standard lot is $8 – or $10 divided by 1.25.
How to calculate it when trading a non-USD account
This case is the opposite of the one from above. The currency that we’re talking about is listed second in the pair. It really matters on what currency you choose. If you want to read more about New Zealand Kiwi Dollar news and live chart, here you have it.
Let’s take for example the Canadian dollar (CAD). Any pair that is XXX/CAD (USD/CAD, for example), will have a fixed pip value. The standard lot is CAD$10, the mini lot is worth of CAD$1, and the micro lot is CAD$0.10.
To see what’s the value of pip when the CAD gets listed first, you need to divide the fixed pip rate by the exchange rate. Let’s take the mini lot as an example – if the CAD/CHF exchange rate is 0.7820, then the pip will value CAD$1.27.