How much is one pips worth?

A pip is a unit that specifies the smallest change in the price of a financial instrument. For example, if the course EUR / USD is 1.3155, then it will change to 1.3160, it means the price has increased by 5 pips. Everything seems simple, but if we add extended quotes to 5 digits after the decimal point and the need to convert the pip into currency, beginners can get lost in it.

Extended quotes

We already know what pip is. However, there is a problem with the standardization of the concept because a good couple of years ago the pair quotes looked something like this:

• 1.2345
• 123.45

Today, the standard is extended by one digit, more accurate quotes:

• 1.23456
• 123.456

So how much is one pips? Next 0.0001 (or 0.01) or already 0.00001 (or .001)?

After the introduction of extended quotes on a larger scale, there were problems with investors' communication, e.g. on internet forums, where everyone considered different. Now, most often we will meet with the distinction of the fourth and fifth figures after the decimal point. The fourth digit after the decimal was still considered to be pips, and the fifth was called the point. So changing the 0.00010 course means changing the 1.0 pips or 10 points. In my opinion, this is the right solution and introduces a certain order, at least among people who know these principles.

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How much is one pips worth?

With this issue, we already have a clear standardization that has never changed. There are simple rules for determining the pip value in the currency.

The pip value depends on the quote currency, which is the second in the currency pair. This means that on a EUR / USD pair, the pip is initially calculated in US dollars, and on a pair USD / CHF in Swiss francs.

The pip value also depends on the transaction volume. The bigger one volume, the greater the pip value. It's best to use the example:

On a pair of EUR / USD and a transaction based on 1.0 lot (100 000 units) 1.0 pips is worth 10 USD. Similarly, with 0.1, it will be 10 times less, ie 1 USD. It will be the same with points. 1 point (0.1 pips) will be worth 1 USD for 1.0 lot, and for 0.1 lot it will be 0.1 USD.

On a USD / CHF pair and a trade of 1.0 lot (100 units), 000 pip is worth CHF 1.0, and so on ...

Invoice in a different currency

Okay, but what if we do not run a dollar or franc account only in zlotys, for example? At this moment, the platform automatically converts these values ​​into the deposit currency of our account. The conversion follows the average exchange rate from the Forex market, so we do not lose or gain additional on such an operation.

Referring to the first example, if the current average USD / PLN rate is 4.20 then 1.0 pips with 1.0 lot on EUR / USD is 10 USD * 4.20 = 42.00 PLN. For 0.1, the lot will be 4.20 PLN.