Pip Values
Forex pip value refers to the amount of money gained/lost for each pip that is gained/lost in currency trading. The easiest way to find out pip value of a currency pair is by observing how much money you gain/lose for each pip you gain/lose when you are in-trading. To do the manual calculation, you need to know what ‘1 pip’ is for the related currency pair. The pip value for each currency pair is different and the value can be determined according to the following formula:
→ FORMULA: Pip Value = 1 pip x Trade Size
Price After Pips
I am not sure what they are trying to get at…maybe the fact that there are spreads and that when you initiate a position you are automatically starting with a loss the size of the spread….
Example:
USD/JPY at an exchange rate of 119.90
(.01 / 119.80) x $100,000 = $8.34 per pip
USD/CHF at an exchange rate of 1.4555
(.0001 / 1.4555) x $100,000 = $6.87 per pip
In cases where the US Dollar is not quoted first, the formula is slightly different.
EUR/USD at an exchange rate of 1.1930
(.0001 / 1.1930) X EUR 100,000 = EUR 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip
GBP/USD at an exchange rate or 1.8040
(.0001 / 1.8040) x GBP 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.
Good Website:
http://www.babypips.com/school/know_your_ps_and_ls.html
Study Guide >> Forex Trading Calculations >> Pip Values and Price After Pips
3 Comments
Pip vlue is calcuated as such
position size in USD X pip value / exhcange rate
Example #1 100,000 GBP/USD pip value rate at 1.5715
100,000 GBP X 1.5715 = 157,150 USD
157150 USD X .001 = 15.715
15.715 / 1.5715 = 10.00
Example #2 100,000 USD/CAD pip value rate at 1.0285
10,000 USD X .0001 = 10
1 / 1.0285 = .972
Pip value for JPY is .01
100,000 USD/JPY at 83.50
100,000 USD X.01 = 1000
1000/83.50 = 11.98
this calcuation allows for trades sizes not standard 100,000 or 10,000 lots…would work for odd trade sizes such as 124,215 if you are using the spot transaction as a hedge to anther investment that would require a specific dollar size.
Pips are always valued in terms of CCY2 (USD/CHF pips are valued in CHF “Swiss Franc” terms, and EUR/USD pips are valued in USD “Dollar” terms).
You are solving for the USD value of a pip per the amount traded. when USD is CCY1 you need to make a conversion (1 / given rate = USD Terms), and when USD is CCY2 the pips are already in USD Terms.
Amount traded = 100,000.
When USD is CCY1 (with conversion):
USD/JPY at an exchange rate of 119.80
(.01 / 119.80) x $100,000 = $8.34 per pip
USD/CHF at an exchange rate of 1.4555
(.0001 / 1.4555) x $100,000 = $6.87 per pip
When USD is CCY2:
EUR/USD at an exchange rate of 1.1930
.0001 X 100,000 = $10 per pip
A short cut:
If you know the value of a pip when USD is CCY2 (EUR/USD, GBP/USD)traded amounts are always valued at:
Description ………. Trade amount …….. Value ……….
“Mini Lot” ……….. 10,000 ………….. $1 ………….
“Standard Lot” ……. 100,000 …………. $10 …………
“Million” ………… 1,000,000 ……….. $100 ………..
“Yard” …………… 1,000,000,000 ……. $1,000 ………
When USD is CCY1: Value / rate = Pip value
100,000 USD/CHF at 1.4555
$10 / 1.4555 = $6.87
When with JPY or HUF multiply by 100 or move decimal 2 places to the left.
100,000 USD/JPY at 119.80
$10 / 1.198 = $8.34
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The ordering of a currency pair for FX trading is standard. It is a ranked list and to form a valid currency pair the higher ranked currency is placed first (hence it is USD/JPY and not JPY/USD)
…………………………….. EUR/USD
……………………………. CCY1/CCY2
CCY1 AKA “Base Currency”, “Transaction Currency”, or “Traded Currency”.
CCY2 AKA “Quote Currency”, “Secondary Currency”, “Terms Currency”, “Variable Currency”, or “Counter Currency”.