Hi fellow forex traders, I need some help understanding the equation babypips has provided in the education lessons… I know standard = 100,000 -mini 10k, micro -1k, & nano = 100 - but if we’re trying to get the value of pip in the exchange rate at a standard unit in their example, I don’t understand how they get 0.01 - example they provide:
(0.01 / 119.80) x 100,000 = $8.34… ???
if at a standard unit, how do they get the 0.01 - isn’t that = to micro 1000?
feeling lost…ugh
Hi,
Let me start with a link to the school lesson that has you feeling “ugh”.
In the USD/JPY example, 0.01 does not refer to 0.01 standard lot. It refers to one pip in a yen-pair.
Let’s review a couple of things, just to make sure they’re clear.
In yen-pairs, the second decimal place represents single pips, the first decimal place represents tens of pips, and so forth.
In the school lesson, USD/JPY = 119.80. In this price, the zero (in the second decimal place) represents 0 pips. The 8 (in the first decimal place) represents 80 pips. And so forth. So, if the price were to increase by 5 pips, it would become 119.85. And if that new price increased by an additional 62 pips, it would become 120.47. If you don’t follow that math, work with it, until you understand it.
Why all this review of pips and their location within forex prices?
Because we’re trying to calculate the USD-value of a pip for one unit of currency, and then use that value to get the USD-value of a pip for 100,000 units of currency. And the school lesson does all this in one calculation.
But, to make the calculation clear, let’s break it into two parts.
• First, we want to find the USD-value of a pip for one unit of currency.
Recall that in yen-pairs, the second decimal place represents one pip. That means that one pip in a JPY-price is 1/100 of one yen. But, we don’t want to know the value of that pip in JPY. We want to know it in USD. So, we divide the value of one pip (in JPY) by the exchange rate, to convert its value in JPY to its equivalent value in USD.
In algebraic form, it would look like this: ¥0.01 / (¥119.80 / $) = $0.0000834 That’s the value in USD of one pip, when we’re dealing with just one unit of currency.
• The second step is a snap.
The value in USD of one pip, when we’re dealing with 100,000 units of currency, will simply be 100,000 times the value calculated above – that is, $8.34
In the second example in the school lesson, the currency pair is USD/CHF.
In all currency pairs except yen-pairs, the fourth decimal place represents single pips; the third decimal place represents tens of pips; the second decimal place represents hundreds of pips; and so forth.
So, following steps similar to the USD/JPY example above, we can say that the value of one pip is 0.0001 Swiss franc. But, we want it’s value in USD. So, we divide 0.0001 by the USD/CHF exchange rate to get the USD-value of one pip in a single unit of currency. And then, we multiply by 100,000 to get the USD-value of one pip in one standard lot of currency. And, once again, the school lesson does all this in one calculation.
I hope now you’re feeling less “ugh” 
Thank you very much Clint… I get it… but now wondering what does it all mean… lol
… and is it standard procedure or wise to figure out before doing a trade? just trying to put all this together…
…and when I see decimal point and numbers going to the right… I’m thinking ten thousandths, hundred thousandths, like what I learned in school… if I understand correcting the fourth decimal place counts as one and then moving to the left goes higher…???
A pip is a tiny portion of the quote currency in any currency pair. It’s 1/10.000 of one unit of the quote currency in non-yen-pairs. And it’s 1/100 of one unit of the quote currency in yen-pairs.
Trading one unit of a currency pair would be a waste of time, because even a price move of several hundred pips would not amount to much, when one pip is such a tiny value. That’s why we trade in
position sizes that are larger than one unit. The school lesson was simply illustrating these facts.
You don’t need to do calculations like the ones in the school lesson in order to construct a trade, but you should know at least approximately the value of one pip in the currency pair and in the lot size you are planning to trade.
Example: If you trade in whole numbers of micro-lots, and you are considering a trade in USD/JPY, you should know that one pip is worth $0.09 per micro-lot. (The easiest way to get that 9¢ pip-value is to use the Pip Value Calculator, here on this site.)
So (continuing this example), if USD/JPY moves 50 pips in your desired direction, a one-micro-lot position will earn 50 x $0.09 = $4.50
In a two-micro-lot position, that same 50-pip move would earn 50 x 2 x $0.09 = $9.00
You are absolutely correct about the ten thousandths, hundred thousandths, etc.
Recall the definition of a pip. Let’s continue with yen-pips as our example. The definition is 1/100 of one yen. Therefore, in a price like USD/JPY = 110.21 (using today’s actual price), we note that the last digit is 1/100 of a yen – which is the definition of one pip (in a yen-pair).
Similarly, in a price like GBP/USD = 1.3072, the last digit is 1/10,000 of a dollar – which is the definition of one pip (in a pair in which USD is the quote currency).
So, when we talk about pips in single units of currency in yen-pairs, we are talking about hundredths of a yen. And when we talk about pips in single units of currency in non-yen-pairs, we are talking about ten thousandths of a unit of whatever the quote currency is.
This is a good place to expound a little on base currencies and quote currencies.
In all EUR-pairs, the EUR is always the base currency. In all JPY-pairs (as we have said several times), the JPY is always the quote currency. All other currencies (USD, GBP, CAD, etc.) can be either base currencies or quote currencies, depending on what they are paired with, according to a specific hierarchy, as follows:
In all EUR-pairs, the EUR is always the base currency.
In all GBP-pairs, except EUR/GBP, the GBP is always the base currency.
In all AUD-pairs, except EUR/AUD, and GBP/AUD, the AUD is always the base currency.
In all NZD-pairs, except EUR/NZD, GBP/NZD, and AUD/NZD, the NZD is always the base currency.
In all USD-pairs, except EUR/USD, GBP/USD, AUD/USD, and NZD/USD, the USD is always the base currency.
— and so forth, down through the minor and exotic currencies, until we come to the JPY —
In all JPY-pairs, regardless of what the JPY is paired with, the JPY is never the base currency.
One final note: In the school lesson (which started this conversation), and in all of the discussion in this thread so far, prices have been quoted in five digits. In these quotes, the last digit on the right represents whole pips. Six-digit quotes are now the standard (example: EUR/USD = 1.11315). In 6-digit quotes, the last digit represents 1/10 of a pip. Newbies and veterans, alike, have to be careful not to confuse pips with tenths of pips.
… and tenths of pips are pipettes, right? lol
Thank you so much Clint… … so I’m currently watching USD/JPY @ $109.99 @ standard lot and figured the pip value for USD is $9.09 … now if I wanted to place a trade now - right it happens to be going down 109.95 -down by 5 pips - down by 9.09 x 5 = $45.45… would you say I’m on the right track?
Bravo, TS
You win the grand prize, which is –
One year’s FREE USE of the PIP VALUE CALCULATOR
Congratulations, for mastering this topic!
thank you again! 
lol …