A pip is the fourth digit in the value of a currency pair, except in Japanese Yen crosses where a pip is the second digit. In EUR/USD, a movement from 1.00660 to 1.00670 is one pip, so a pip is .00010. In USD/JPY, a movement from 120.450 to 120.460 is one pip, so a pip is .010. How much in dollars is this movement worth, for example, per 100,000 Euros in EUR/USD? How much is one pip worth per 100,000 Dollars in USD/JPY? We will refer to the size, in this case 100,000 units of the base currency, as the 'Notional Amount'. The formula for calculating a pip value is therefore: (one pip, with proper decimal placement/currency exchange rate) x (Notional Amount).
Using USD/JPY as an example, this yields: (.010/120.460) x USD $100,000 = $8.30 per pip.
Using EUR/USD as an example, we have: (.00010/1.00660) x EUR 100,000 = EUR 9.93. But we want the pip value in USD, so we then must multiply EUR 9.93 x (EUR/USD exchange rate): EUR 9.93 x 1.00660 = $10.00 per pip.
This is in fact a phenomenon you will see with any currency in which the quote currency is USD (such as EUR/USD, GBP/USD, or AUD/USD): the pip value is always USD $10.00 per 100,000 currency units. If the pair name ends with something other than USD the pip value per 100,000 currency units will be slightly more or less than USD $10.00.
Seem a bit too complicated? Check out our easy-to-use pip calculator and let it do the work for you.
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