Now that we have discussed what a lot is, it’s time to discuss what a pip is worth. You will remember from our second educational video, that a pip is the measure of the change in the exchange rate of a currency pair. But, how do we calculate the value of a pip in terms of its monetary worth? The formula is simple: The amount of the Base currency (in lots) times the number of pips, equals the amount in Quote currency.
If you want to find out how much 1 pip is worth in EURUSD, per lot (or 100 000 units) of the base currency, it would look like this: For Yen-based currency pairs, the result is a little different because the pip corresponds to the second decimal digit. Let’s take a look at a practical example using a trade. A trader buys 1.5 lots of GBPUSD at 1.3030. Once the price rises, for example to 1.3043, he decides to close his position. He’s made a profit of 13 pips. But how much did he make in dollars? The formula in the case of GBPUSD here, would look like this: That’s how you calculate the monetary value of a pip!