Pip value definition

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Pip value is the value attributed to a one- pip move in a forex trade.

The definition of a pip can vary between currencies, but it is usually equal to the fourth figure after the decimal point in a currency listing. In GBP/USD, for instance, 0.0001 is one pip. Because pips are tiny in value, forex trades in micro lots, mini lots and lots: 1,000, 10,000 or 100,000 units of currency.

To calculate pip value, divide one pip (usually 0.0001) by the current value of the currency pair. Then, multiply that figure by your lot size: the number of base units that you are trading.

Pip value example

If AUD/USD is trading at 0.7500 and you are trading the equivalent of $100,000, then one pip would equal $13.33, as:

(0.0001/0.7500) x 100,000 = 13.33

The value of a pip in US dollars would be calculated as the value of one pip multiplied by the exchange rate (0.7500), in this instance US$9.9975.

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