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How to Calculate Pip
Values A
"pip" is the smallest increment in any currency pair. In
EURUSD, a movement from .8941 to .8942 is one pip, so a pip is
.0001. In USDJPY, a movement from 130.45 to 130.46 is one pip, so a
pip is .01. How much in dollars is this movement worth, for example,
per 10,000 Euros in EURUSD? How much is one pip worth per 10,000
Dollars in USDJPY? We will refer to the size, in this case
10,000 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
USDJPY as an example, this yields:
(.01/130.46) x USD10,000 = $0.77
or 77 cents per pip Using
EURUSD as an example, we have:
(.0001/.8942) x EUR10,000 = EUR 1.1183 But
we want the pip value in USD, so we then must multiply EUR1.1183 x (EURUSD
exchange rate):
EUR 1.1183 x .8942 = $1.00 This
is in fact a phenomenon you will see with any currency in which the
currency is quoted first (such as EURUSD, GBPUSP, or AUDUSD): the pip
value is always $1.00 per 10,000 currency units. This is why pip (or
"tick") values in currency futures, where the currency is quoted
first, are always fixed.
Approximate pip values for the major
currencies are as follows, per 10,000 units of the base currency:
USD/JPY: 1 pip =
$.77;
In other words a change from 130.45 to 130.46 is worth about $.77 per
$10,000. EUR/USD: 1 pip =
$1.00; .8941 to .8942 is worth $1.00 per 10,000 Euros. GBP/USD: 1 pip =
$1.00; 1.4765 to 1.4766 is worth $1.00 per 10,000 Pounds. USD/CHF: 1 pip =
$.59; 1.6855 to 1.6866 is worth $.59 per $10,000.
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