Direct answer: what “pip value” means and how to calculate it
Pip value is the amount of money you gain or lose in your account currency for a move of one pip in a given currency pair. For Pair Session Behaviour, the concept matters because session timing can affect typical price movement size, but the pip-value calculation itself follows the same mechanics: convert “one pip” in the traded pair into a value in your account currency.
A self-contained way to calculate pip value is:
- Decide the pip size for the pair (how much price changes per pip).
- Convert that price change into a base-currency value using the position size.
- Convert the base-currency value into account currency using the relevant exchange rates.
Mechanism: the core formulas and required assumptions
1) Choose pip size (the “one pip” price step)
A pip is a standardized price increment. The exact numeric pip size depends on how the instrument is quoted (for example, whether the pair is quoted with 4 decimals, 2 decimals, or fractional pips). To compute pip value, you must state the pip size you are using in price terms:
- Let pipSize be the price change of one pip.
- Examples of how pipSize is chosen are market/instrument specific, so treat pipSize as an input you define for your calculation.
2) Define trade size
Let N be the number of units in the base currency for the position (for many retail contexts this is “units,” even if you discuss it as lot size elsewhere). Then:
- If you have baseUnits = N, a one-pip price move changes the position’s value by an amount that is proportional to pipSize.
3) Convert one-pip movement into base-currency value
For a currency pair quoted as Base/Quote (for example, Base = first currency, Quote = second currency), a one-pip move changes the quoted price by pipSize. The change in value in base currency can be expressed as:
- valueInBase = baseUnits × pipSize
This step is stable as long as your pipSize and position units are consistent.
4) Convert base-currency value into account currency
Let AccountCur be your account currency. You now choose the conversion route based on whether AccountCur matches the base or quote currency.
Case A: AccountCur equals Base
- pipValue = valueInBase
Case B: AccountCur equals Quote Because the pair’s quote currency is the account currency, you can convert value in base to quote by using the current pair price P (Base/Quote):
- pipValue = valueInBase ÷ P
Case C: AccountCur is neither Base nor Quote You need an additional conversion rate that links AccountCur to either Base or Quote. A practical generic approach is:
- Convert valueInBase into a currency you can directly convert into AccountCur using one extra FX rate.
In formula form, using an extra rate X that converts from the intermediate currency to AccountCur:
- pipValue = valueInBase × X
Where X depends on which intermediate currency you choose and must be defined consistently (for example, whether X is “AccountCur per unit of intermediate” or the inverse).
Worked example (with explicit assumptions)
Assume:
- The pair is Base/Quote.
- You hold baseUnits = N in Base.
- You define pipSize as the one-pip price increment for this instrument.
- The current pair price is P = Base/Quote.
Then:
- valueInBase = N × pipSize
If your account currency is Quote:
- pipValue = (N × pipSize) ÷ P
If your account currency is neither Base nor Quote:
- you must specify an additional conversion rate X from the chosen intermediate currency into AccountCur, then apply pipValue = (N × pipSize) × X.
How this relates to Pair Session Behaviour (and what it does not change)
Pair Session Behaviour describes how a pair’s trading activity and typical movement characteristics can vary across different market sessions. That can affect what sizes of price moves are common during a session. However, pip value is a conversion of a defined price step (one pip) into account currency.
So, for Pair Session Behaviour:
- The session can influence inputs you observe (the current exchange rate you use for conversion and the realized price movement).
- The underlying pip-value method remains the same because it still converts one pip using pip size, position size, and currency conversion.