Question about the value of a pip for most trades with USD as the counter currency

Beginner Questions
1

I’m still trying to understand how to calculate the amount you gain/lose for each pip. When I use the equation from one of the early lessons on any currency pair that involves USD, each pip represents 1USD.

Example: 1AUD/0.7383USD
10,000 lots = 7383 USD
Currency pair goes up 10 pips and I sell
10,000 x 0.7393 = 7393 USD
7393 - 7383 = 10USD profit

Which means for each pip it went up, I gained 1USD.

I understand that only works for lots that are 10,000, but still. Is every pip worth a USD or a factor of 10?

I’m just trying to understand the math behind the trading and its proving rather difficult for me.

2

Hello, Tiny

Welcome to this forum.

In every currency pair EXCEPT yen pairs, the value of 1 pip is 1/10,000 of a UNIT of the quote currency.

In every yen pair, the value of 1 pip is 1/100 of a UNIT of the quote currency (that is, 1/100 of a yen, because in every yen pair, the yen is ALWAYS the quote currency).

In every trade, the value of a 1-pip move is the pip-value defined above TIMES the number of units in the trade. There are no exceptions to this statement.

Examples:

• You trade EUR/USD. Your position size is 10,000 UNITS (i.e., 1 mini-lot).
One pip is 1/10,000 of one USD. That is, 1 pip is $0.0001
The value of a 1-pip move (in this trade) is $0.0001 x 10,000 which equals $1.
The value of a 10-pip move is $0.0001 x 10,000 x 10 which equals $10. And so forth.
If your account is denominated in USD, then these values are stated the way you want them.

• You trade EUR/GBP. Your position size is 10,000 UNITS.
One pip is 1/10,000 of one GBP. That is, 1 pip is £0.0001
The value of a 1-pip move (in this trade) is £0.0001 x 10,000 which equals £1.
The value of a 10-pip move is £0.0001 x 10,000 x 10 which equals £10. And so forth.
If your account is denominated in USD, then you don’t want your P/L stated in terms of GBP.

You want P/L stated in terms of USD. So, a conversion from GBP to USD must be made, and this involves the current price of GBP/USD. Let’s say the current price of GBP/USD is 1.2882. This can be written as £1 = $1.2882. Therefore, simple math tells us that for this trade, given the current price of GBP/USD, a 1-pip move is worth $1.2882, and a 10-pip move is worth $12.882

• You trade EUR/JPY. Your position size is 10,000 UNITS.
One pip is 1/100 of one JPY. That is, 1 pip is ¥0.01
The value of a 1-pip move (in this trade) is ¥0.01 x 10,000 which equals ¥100.
The value of a 10-pip move is ¥0.01 x 10,000 x 10 which equals ¥1,000
If your account is denominated in USD, then you don’t want your P/L stated in terms of JPY.

You want P/L stated in terms of USD. So, a conversion from JPY to USD must be made, and this involves the current price of USD/JPY. Let’s say the current price of USD/JPY is 113.34. This can be written as $1 = ¥113.34. Therefore, simple math tells us that for this trade, given the current price of USD/JPY, a 1-pip move is worth ¥100 / 113.34 which equals $0.8823. And a 10-pip move is worth $0.8823 x 10 which equals $8.823

• You trade AUD/CAD. Your position size is 10,000 UNITS.
This one is for you to work out. See if you can do it.

I hope this has been helpful.

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1 Like
3

So one pip is 1/10,000 of one CAD, which is $0.0001
The value of a 1 pip move is $0.0001 x 10,000 which is $1 and 10 pips is $10

I would need to convert CAD to USD for any P/L. The current price of CAD/USD is 0.7294. So a 1-pip move is $0.7294 and a 10-pip is $7.294

That definitely does help out a lot, thank you so much!

So if every currency pair that has USD as a quote currency has a pip value of $1 at a 10,000 lot, then it doesn’t matter what I trade because each pip movement will always be $1? That means that if the EUR/USD is 1.0876 and GBP/USD is 1.2938, if they both go up 10 pips I would still get a profit of $10?

It’s making a little more sense to me.

4

Correct.

The only thing I would do differently is this: To avoid confusion, I would write Canadian dollars as C$1, C$10, etc.; Aussie dollars as A$1, A$10, etc.; and New Zealand dollars as NZ$1, NZ$10, etc.

You’ve got it.

And you cleverly inverted the USD/CAD price, in order to use the synthetic CAD/USD equivalent.

Kudos.

I’m glad that the fog is clearing.

Correct. But, keep in mind that this applies to only 4 pairs: EUR/USD, GBP/USD, AUD/USD, and NZD/USD – because all other USD pairs have the USD as the base currency, not the quote currency.

This is because of a “hierarchy” in the pairing of currencies, which everyone adheres to.

The hierarchy begins this way: EUR, GPB, AUD, NZD, USD, … then the rest of the major currencies, then the minor currencies, and then the exotic currencies … finally ending up with the JPY (which is never the base currency in any pairing).

So, in any pair containing the EUR, the EUR is always the base currency.
In any pair containing the GBP, except EUR/GBP, the GBP is always the base currency.
In any pair containing the AUD, except EUR/AUD and GBP/AUD, the AUD is always the base currency.
In any pair containing the NZD … you get the point.

In your grasp of pip-values, you’re already ahead of most of the newbies on this forum! :35:

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