This is sometimes impossible for me to calculate the pip value. I found many online calculators which will help me to calculate. However, I want to do it manually.
Can anyone here who can show me an easy step to calculate?
Okay, fasten your seat-belt, and let’s do a pip-value calculation the old-fashioned way – by hand.
Let’s begin with a solid understanding of what a pip is.
In individual currencies –
For all major and minor currencies EXCEPT the JPY, one pip is 1/10000 of one unit of currency.
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For the USD, one pip is 1/10000 of one unit of USD (that is, one pip = $0.0001)
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For the GBP, one pip is 1/10000 of one unit of GBP (that is, one pip = £0.0001)
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…and so forth
For the JPY, one pip is 1/100 of one unit of JPY (that is, one pip = ¥0.01)
In currency pairs –
The pip-value of a currency pair is stated in terms of the quote currency.
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For the EUR/USD pair, one pip is 1/10000 of one unit of USD
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For the USD/CHF pair, one pip is 1/10000 of one unit of CHF
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…and so forth
For the USD/JPY pair, one pip is 1/100 of one unit of JPY
In lots traded –
Generally, in forex trading, we don’t trade individual units of currency. We trade lots (100000 units), or fractions of lots – mini-lots (10000 units), micro-lots (1000 units), etc. So, we are concerned with the value of one pip multiplied by the size of our trades.
Typically, when traders speak of pip-values, they mean the value of one pip, in a particular currency pair, in a specified trade size.
For all major and minor pairs XXX/YYY, except yen-pairs, pips are worth –
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1/10 of a unit of YYY per micro-lot (1000 units)
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1 unit of YYY per mini-lot (10000 units)
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10 units of YYY per standard lot (100000 units)
For all yen-pairs XXX/JPY, pips are worth –
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10 units of JPY (that is, ¥10) per micro-lot
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100 units of JPY (that is, ¥100) per mini-lot
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1000 units of JPY (that is, ¥1000) per standard lot
Now that we have a clear understanding of pips, we can do some calculations.
Let’s say you have an account denominated in USD, you want to calculate the pip-value for a GBP/JPY trade, and your intended position size is 3 mini-lots. And let’s say that currently USD/JPY = 109.00. (Round numbers make the math simpler.)
Notice that we don’t need the current price of GBP/JPY (the traded pair), in order to do this calculation.
We have already determined (above) that pips are worth ¥100 per mini-lot. But, your account is denominated in USD, so you want to know the dollar-value of ¥100 per mini-lot in a 3-mini-lot trade.
Pip-value = (¥100 per mini-lot) ÷ (¥109.00 per dollar) x 3 mini-lots = $2.75 (rounded off).
You can check this result, using The Babypips Pip-Value Calculator, where you will get this result –
Notice that the Pip-Value Calculator asked for the price of GBP/JPY, which is unnecessary for this calculation. You can prove to yourself that this “Ask Price” is extraneous data, by changing it to any number you like (even a ridiculous number, like 5000), and then re-calculating. You will find that it doesn’t change the calculated pip-value.
For some other pip-value calculations, the current ask price for the pair traded is required, and that’s why it’s one of the elements in the Calculator.
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Thank you Clint! I needed a clear answer on this for an algo system I am creating. Your answer is better than any other explanation I have seen including the babypips school. Particularly, the last paragraph explaining that the cross pair rate is not necessary to calculate its PIP value.
The following formula is used to calculate the value of a point in US dollars:
Pip Value = (Lot * Pip) / Quote currency rate to USD
P.S. Oh, seems you don’t need answer anymore. Any way, I don’t think it’s unuseful, mb someone will be interested in it.
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