How to Calculate Pip Value in Forex Trading Like a Pro

A Price Interest Point (PIP) is known as the smallest whole unit of a price movement.

Forex pip value calculation is one hundredth of a single percent (1/100 x 0.01).

Almost every foreign exchange pair is priced out to the fourth decimal place (0.0001).

Most new traders confuse pips with bps, or Basis points, which are usually used to refer to interest market rates and are calculated as 1/100 of a percentage.

In this guide, you’ll learn to calculate pip value in Forex step by step, so you can trade like a pro.

Understanding Pips in Forex Currency Pairs

In the $6 trillion daily volume foreign exchange (Forex) market, which revolves around buying one currency while simultaneously selling another, currencies are quoted as pairs (e.g., EUR/USD). These pairs are typically expressed with prices quoted to four decimal places, allowing traders to track minute shifts in value.

For example, if EUR/USD moves from 1.1200 to 1.1201, that 0.0001 increment is one pip. This seemingly tiny movement becomes the backbone of profit and loss calculations in forex trading.

Forex Pip Value Calculation

The value of a pip varies based on the specific currency pair, the exchange rate, and the size of the trade.

For traders with accounts denominated in U.S. dollars, when the USD serves as the quote currency, meaning it appears second in the pair, as is the case with EUR/USD, the pip size is consistently 0.0001.

The truth is that pip's value differs from one pair to another.

To determine the pip value in this scenario, you multiply the trade amount (or lot size) by 0.0001.

For instance, if you hold a position of 15,000 euros in the EUR/USD pair, multiplying 15,000 by 0.0001 gives you a pip value of $1.50.

So, if you bought 15,000 euros at an exchange rate of 1.1050 and later sold at 1.1065, you would have gained 15 pips, translating to a profit of $22.50.

Value Traded × Quote Currency Pip = Pip Value

10,000 × 0.0001 = 1

If USD is the base currency, the exchange rate affects the pip value as well.

Divide the size of a pip by the exchange rate and then multiply by the trade value (or lot size).

For USDCAD

Trade Value (Pip Size ÷ Exchange Rate) = Pip Value

100,000 (0.0001 ÷ 1.2625) = 7.9208

For example, 0.0001 divided by a USD/CAD exchange rate of 1.2625 and multiplied by a standard lot size of 100,000 results in a pip value of $7.92. If you bought 100,000 USD against the Canadian dollar at 1.2625 and sold at 1.262, you’d make a profit of 1 pip or $7.79

The Japanese are an exception in this market; the JPY pairs are quoted with two decimal points

For EUR/JPY and USD/JPY, the value of a pip is (1/100)/market exchange rate.

Let's assume, if the EUR/JPY is 135.36, a single pip value is 0.01 divided by 135.36= 0.0000738.

One lot is 100,000 Euros. Which eventually prices a single pip at 0.0000738 x 100,000 = $7.38

Many traders struggle to calculate pip value in Gold (XAUUSD), which is why we’ve created a dedicated guide to explain it in detail.

Pips and Profitability

In Forex trading, the fluctuations in a currency pair’s exchange rate directly determine your gains or losses.

For example, if a trader buys the EUR/USD pair, she profits if the Euro price increases against the USD. Suppose the trader enters at 1.1750 and exits at 1.1820; that’s a 70-pip gain (1.1820 - 1.1750).

Now, take a trader who sells the USD/JPY pair at 110.50. If they close the position at 110.55, they take a loss of 5 pips.

Although these small movements do not seem to be hurting anybody, at scale, they transform into either the hell of losses or the heaven of gains.

Imagine holding a position worth $15 million that closes at 110.40 (which is very possible with leverage); this would yield a profit of ¥1,500,000.

When converted back to U.S. dollars at that rate, the profit equals approximately $13,603.60 (¥1,500,000 ÷ 110.40).

This example highlights how understanding pip movements is critical for quantifying real-world profitability in forex trading.

Real-World Examples of Pip Value Challenges

Extreme economic and geopolitical conditions can drastically affect a currency pair, making the traditional concept of a pip meaningless.

Hyperinflation and severe currency devaluation can push exchange rates to unbelievable levels, rendering standard forex pip value calculation impractical and complicating trading operations.

A striking example unfolded in Zimbabwe during the late 2000s, when hyperinflation reached mind-boggling levels.

At its peak in November 2008, the Zimbabwean dollar depreciated to the point where it took over 35 quadrillion Zimbabwean dollars to equal one U.S. dollar.

This massive devaluation forced the country to abandon its currency entirely, adopting foreign currencies like the U.S. dollar and South African rand for everyday transactions.

During this period, traditional pip values lost all practical meaning, as price movements became overwhelmingly large and erratic.

Similarly, Venezuela experienced severe currency devaluation in the 2010s.

The Venezuelan bolívar’s exchange rate against the U.S. dollar soared exponentially, surpassing 10 million bolívares per dollar at various points.

The government issued new versions of the currency, removing zeros multiple times to try and stabilize the market.

Traders found that typical forex pip value calculators and standard pip calculations no longer applied as usual, necessitating adaptations for risk management and trade sizing.

These extreme cases underscore that while understanding how to calculate pip value in forex trading is crucial in most markets, the concept can lose relevance in hyperinflationary environments, highlighting the need for adaptability alongside technical knowledge.

Conclusion

Understanding how to calculate pip value in forex trading is fundamental to understanding the markets and managing your risk effectively.

From comprehending the basics of pips and fractional pips to navigating complex scenarios involving different currency pairs and exchange rates, all take part in making you a skilled trader.

Tools like a reliable Forex pip value calculator become indispensable for maintaining accuracy and confidence in your trades.

For an easy-to-use and trusted resource, check out our professional pip value calculator, designed to simplify pip value calculations and enhance your trading precision.

Your journey toward profitable and consistent trading starts with understanding the fundamentals, and we’re here to guide you every step of the way.