Calculating Pips

Beginner Questions
4

Yes @HAzEZA,

First it’s important to understand that the value of a pip is determined by the counter currency (AKA the quote currency) which is the second currency of a pair.

For example:

  • CAD is the counter currency of the USD/CAD currency pair.
  • USD is the counter currency of the AUD/USD currency pair.
  • JPY is the counter currency of the GBP/JPY currency pair.

Since the value of a pip is determined by the counter currency:

  • The value of a pip is 0.0001 CAD for the USD/CAD currency pair.
  • The value of a pip is 0.0001 USD for the AUD/USD currency pair.
  • The value of a pip is 0.01 JPY for the GBP/JPY currency pair. (JPY currency pairs are quoted to 2 places to the right of the decimal point instead of 4.)

Since the value of a pip for the USD/CAD currency pair is 0.0001 CAD, you must convert this into the USD equivalent, if your trading account is denominated in US dollars. You would make this conversion by dividing 0.0001 CAD by the USD/CAD exchange rate. That is what the calculations in your example are meant to do.

If the current USD/CAD exchange rate is 1.0200, then 0.0001 CAD equals 0.00009804 USD, which is 0.0001 divided by 1.0200.

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