How to calculate pip value by hand, and why it changes from pair to pair

Put a 20-pip stop on EUR/USD and a 20-pip stop on USD/JPY, same lot size, and the two trades do not risk the same amount of money. On a standard lot the first one risks $200. The second risks somewhere around $130, and the exact figure shifts every time the yen moves.

Most trading platforms do this math for you. That is convenient right up until the number on the screen looks wrong and you have no way to tell whether it is. This guide walks through pip value by hand. Do it a few times and position sizing stops being guesswork.

What a pip is

A pip is the standard unit for quoting a change in an exchange rate. For most currency pairs it is the fourth decimal place, 0.0001. If EUR/USD moves from 1.0850 to 1.0851, it has moved one pip.

Pairs that include the Japanese yen are the main exception. They are quoted to two decimal places, so a pip is 0.01. USD/JPY moving from 150.20 to 150.21 is a one-pip move.

Nearly every broker now quotes one extra digit: EUR/USD at 1.08503, USD/JPY at 150.207. That last digit is a fractional pip, often called a pipette, and it is worth a tenth of a pip. MetaTrader and several other platforms call it a “point.” On a five-digit quote, a 100-point stop is a 10-pip stop. Mixing up the two is one of the more common beginner mistakes, and one of the more expensive.

The word itself is usually expanded as “percentage in point” or “price interest point.” Nobody agrees on which came first, and it makes no difference to the arithmetic.

Lot sizes

Forex position size is measured in units of the base currency, which is the first currency in the pair. A standard lot is 100,000 units, a mini lot is 10,000 and a micro lot is 1,000.

So 0.25 lots of EUR/USD is 25,000 euros of exposure. Most retail brokers let you trade in steps of 0.01 lots, or 1,000 units, though some account types have larger minimums.

The formula

Pip value always starts out in the quote currency, the second currency in the pair:

Pip value in the quote currency = position size in units × pip size

For one standard lot of EUR/USD, that is 100,000 × 0.0001 = 10. The quote currency is the dollar, so the answer is $10 per pip.

For one standard lot of USD/JPY, it is 100,000 × 0.01 = 1,000. The quote currency is the yen, so the answer is ¥1,000 per pip.

That second answer is correct and not very useful if your account is in dollars. The last step is converting pip value into your account currency, and the conversion is where pairs start to differ.

The examples below assume a US dollar account and use round, made-up exchange rates so the arithmetic is easy to follow. They are not current market prices.

Case 1: the dollar is the quote currency

EUR/USD, GBP/USD, AUD/USD and NZD/USD all have the dollar second. The pip value is already in dollars, so there is nothing to convert. One standard lot is worth $10 per pip, a mini lot $1 and a micro lot 10 cents, wherever the exchange rate happens to be.

This is why so many trading tutorials use EUR/USD for every example. The numbers never change.

Case 2: the dollar is the base currency

For USD/JPY, USD/CHF and USD/CAD, pip value comes out in yen, francs or Canadian dollars. To convert it, divide by the current exchange rate.

With USD/JPY at 150.00, ¥1,000 ÷ 150.00 = $6.67 per pip on a standard lot.

With USD/CAD at 1.3800, C$10 ÷ 1.3800 = $7.25 per pip.

Because the exchange rate sits in the denominator, pip value moves with the market. Here is USD/JPY at three different levels:

A 20-yen swing in the rate changes your dollar risk per pip by about 14%. If you worked out a lot size months ago and have reused it ever since, check it again.

Case 3: cross pairs

A cross is a pair without the US dollar, such as EUR/GBP, GBP/JPY or AUD/NZD. Pip value comes out in the quote currency, and you convert it with whichever rate links that currency to the dollar.

EUR/GBP: one standard lot is worth £10 per pip. With GBP/USD at 1.3000, that is £10 × 1.3000 = $13.00.

GBP/JPY: one standard lot is worth ¥1,000 per pip. With USD/JPY at 150.00, that is ¥1,000 ÷ 150.00 = $6.67.

The GBP/JPY rate never appears in that calculation. Only the quote currency and its rate against your account currency go into pip value.

Whether you multiply or divide depends on how the conversion pair is quoted. If your account currency is the second currency of the conversion pair, as the dollar is in GBP/USD, multiply. If it comes first, as in USD/JPY, divide. When in doubt, write the currency next to every number and check that the units cancel.

If your account is not in dollars

The logic is the same with a different last step. Say your account is in euros and you trade one standard lot of EUR/USD. The pip value is $10. With EUR/USD at 1.1000, that converts to $10 ÷ 1.1000 = €9.09 per pip.

A trader with a euro account and a trader with a dollar account can hold the identical EUR/USD position and still have different pip values. Each of them sees the same price move translated into a different currency.

Turning pip value into a position size

Pip value is mostly good for one job: working out how large a position should be so that a stop-loss, if it is hit, loses an amount you chose in advance.

Lots = (account balance × risk per trade) ÷ (stop distance in pips × pip value per standard lot)

Take a $5,000 account that risks 1% per trade, which is $50, with a 25-pip stop.

On EUR/USD: $50 ÷ (25 × $10) = 0.20 lots.

On USD/JPY at 150.00: $50 ÷ (25 × $6.67) = 0.30 lots.

Same account, same risk, same stop distance, and the yen trade can be half again as large because each pip is worth less. Use 0.20 lots on both and the USD/JPY trade risks about $33 instead of $50. That is not a disaster, but it is not the plan. The opposite mistake is worse: carry a USD/JPY-sized position over to a pair like EUR/GBP, where pips are worth more, and you end up risking more than you meant to without noticing.

Round the result down to the nearest size your broker allows. Rounding up is how 1% turns into 1.2%.

The spread works the same way. A 1.2-pip spread on 0.20 lots of EUR/USD costs 1.2 × $2 = $2.40, and you pay it the moment the trade opens.

Where calculators help and where they can mislead

Online pip calculators and the risk tools built into trading platforms are fine for everyday use. A few things they do not always make obvious:

• They use the conversion rate at the moment you ask. On any pair where the dollar is not the quote currency, pip value drifts while the trade is open.
• The math assumes you get out at your stop price. When the market gaps, a stop order can be filled well beyond it.
• Gold, oil, stock indices and crypto CFDs have no universal pip. Contract sizes and tick values differ between brokers, and sometimes between account types at the same broker, so read the contract specification for the exact instrument.
• Pip value tells you nothing about overnight financing charges, commissions or currency conversion fees. Those are separate costs.

A quick self-check

Try these before reading the answers. Use a dollar account, one standard lot, and these made-up rates: USD/CHF 0.8000, AUD/USD 0.6500, GBP/USD 1.3000.

1. What is one pip worth on USD/CHF?
2. What is one pip worth on EUR/GBP?
3. What is one pip worth on GBP/AUD? The quote currency here is the Australian dollar.

Answers: CHF 10 ÷ 0.8000 = $12.50. Then £10 × 1.3000 = $13.00. And A$10 × 0.6500 = $6.50.

If you got all three, you can price a pip on any currency pair your broker lists, and you will notice when a calculator has been fed the wrong numbers.