How to calculate PIP Value in FOREX Currency Trading?

PIP stands for (Price Interest Point). For calculating PIP value of selected currency pair, first need to know in which category your selected currency pair comes.  In FOREX trading there are two currencies included and its called Currency PAIRS.   These currency pair symbols are came from their three letter ISO symbols like USD, JPY, GBP, etc. FX Currency Pair contains two currencies. The first currency called “Base Currency ” and second one called “Quote Currency“. The value of  currency pair in FOREX Trading means the value of Base Currency in the Quoted Currency.

For Example EUR/USD has value 1.11710 means 1 EUR = 1.11710 USD.

Following are the three category you must know to calculate the PIP value of your selected currency pair.

1. Direct Rates

In the currency pair, the Quote Currency (Second Currency) will be USD called Direct Rates. For example EUR/USD, GBPUSD, AUD/USD, etc. Following are the calculation for Currency Pairs in direct rates category.

The formula for calculating PIP value in Direct Rates is,

PIP = Lot Size x  Tick Size

The standard size of a Lot is 100,000 and Tick Size means smallest possible change in Price.

Below shows an example of calculating One PIP value for One Lot of EURUSD currency pair.

1 PIP = 100,000 (Lot Size) x 0.0001 (Tick Size) = 10USD.

Example:

1 Lot of EUR/USD Buy @ 1.1175 and Sell @ 1.1180

Calculating Proft/Loss in direct rates is calculated as below,

Profit/Loss = Sell Price –  Buy Price

1.1180 (Sell Price) – 1.1175 (Buy Price) = 0.0005  (P/L) = 5 PIPS Profit

One PIP in One Lot of EURUSD = 10 USD

So the above trading gives 5  PIP x 10 USD = 50USD Profit.

2. Inirect Rates

In the currency pair, the Base Currency (First Currency) will be USD called Indirect Rates. For example USD/JPY, USD/CHF, etc.  Use the following calculation to know the value of PIP in currency pairs in Indirect Rates category.

PIP = Lot Size x Tick Size / Current Rate

Below shows an example of calculating One PIP value for One Lot of USD/JPY currency pair.

1 PIP = 100,000 (Lot Size) x 0.01 (Tick Size) / 109.75 (Current Rate) = 9.11 USD.

Example:

1 Lot of USD/JPY Buy @ 109.70 and Sell @ 109.75 (Current Rate)

Calculating Proft/Loss in direct rates is calculated as below,

Profit/Loss = Sell Price –  Buy Price

109.75 (Sell Price) – 109.70 (Buy Price) = 0.05  (P/L) = 5 PIPS Profit

One PIP in One Lot of EURUSD = 9.11 USD considering Current Rate of USD/JPY is 109.75.

So the above trading gives 5  PIP x 9.11 USD = 45.55 USD Profit.

3. Cross Rates

Cross Rates currency pair means currency pair does not have USD included. For example EUR/GBP, etc.  Use the following calculation to know the value of PIP in currency pairs in Indirect Rates category.

PIP = Lot Size x Tick Size x Base Quote / Current Rate

The Base Quote means current Base Pair quote, that is Current Rate of EUR/USD.

Below shows an example of calculating One PIP value for One Lot of EUR/GBP currency pair.

1 PIP = 100,000 (Lot Size) x 0.0001 (Tick Size) x 1.1180 (Base Quote EURUSD)  / 0.7580 (Current Rate) = 14.75 USD.

Example:

1 Lot of EUR/GBP Buy @ 0.7575  and Sell @ 0.7580 (Current Rate)

Calculating Proft/Loss in direct rates is calculated as below,

Profit/Loss = Sell Price –  Buy Price

0.7580 (Sell Price) – 0.7575 (Buy Price) = 0.0005  (P/L) = 5 PIPS Profit

One PIP in One Lot of EUR/GBP = 14.75 USD considering Current Rate of  EURUSD is 11.1180 and EUR/GBP is 0.7580.

So the above trading gives 5  PIP x 14.75 USD = 73.75 USD Profit.