Forex basic - PIP

For Forex instruments with five places shown after the decimal point (0.00001) and with three places after the decimal point (0.001), the value of one pip is equal to the change in the fourth (0.0001) and second (0.01) place after the decimal point, respectively.

Let’s calculate the value of one pip for example 1.43 lot on the currency pair GBPCHF. Suppose that we open a Buy position of 1.43 lot at 2.35330 and close the opened position at 2.35340 (1 pip = 2.35340 - 2.35330 = 0.00010).

Let’s consider the formula to calculate the value of one pip:

OnePipValue = (Contract * (Price + OnePip)) - (Contract * Price), where:

OnePipValue – the value of one pip in the quote currency

Contract – the contract size in the base currency

Price – the price of the currency pair

OnePip – the smallest price increment for a currency (one pip)

The quote currency is the second currency in the quotation, for example:

EURUSD – the quote currency is USD

GBPCHF – the quote currency is CHF

EURGBP – the quote currency is GBP

Example 1: Calculating the value of one pip in GBPCHF on a trading account with USD as the deposit currency:

Lot = 1.43;

Trading Instrument (Currency Pair) – GBPCHF;

GBPCHF Rate = 2.3533;

Contract = 143,000 GBP

USDCHF Rate = 1.1659 (necessary for converting the value of one pip into the deposit currency)

Calculation:

1. OnePipValue = (143,000 * (2.3533 + 0.0001)) - (143,000 * 2.3533) = 336,536.2 – 336,521.9 = 14.3 CHF

2. Now we convert the value of one pip into the deposit currency (USD). 

If USD is the first currency in the pair under consideration, the pip value should be divided by the rate, otherwise it should be multiplied:

OnePipValue = 14.3 CHF / 1.1659 = 12.27 USD

OnePipValue = 14.3 CHF / 1.1659 = 12.27 USD

The value of one pip in GBPCHF is equal to 12.27 USD.