Calculating Pip Values

In a majority of currencies, a pip equals .01% of the currency, so 10,000 pips = 1 unit. To make things a little more concrete, let's examine the U.S. Dollar when it comes to pip value. 100 pips = 1 cent and 10,000 pips equal $1. This is the equation in most cases, but a well-known exception is the Japanese Yen. The Yen is worth relatively so little, that each pip is not worth a ten thousandth of a unit but rather each pip is 1% of a Yen. 

When you are trading one currency against another, the value of the pip is in the quoted price not the base price. So, for example, if the position is EUR/USD, the pip value is in U.S. Dollars (.0001 USD). However, for USD/EUR, the pip value is .0001 EUR. If the conversion rate from Euros to Dollars is 1.35, then 1 Euro pip equals 0.000135 dollars. 

Since most calculations in forex are displayed in pips, in order to understand your gains or losses, you will need to convert your pips to your currency. Let's take the USD for example. If you close a trade, to determine your total loss or gain, you must first multiply the pip difference by the number of units traded. This will give you the total pip difference between the opening and closing of the trade. If the quoted price is USD then the pips are expressed in USD, but if the USD is the base currency, you will need to convert the pip value to USD. 

Converting the pip value to USD is a pretty simple equation. You just take total pip profit or loss and divide it by the conversion rate. Read more ...