Definition: what “pip value” means
A pip is a standardized price move used in forex quoting. For EUR USD, the most common convention is that 1 pip = 0.0001 USD per 1 EUR notional.
Pip value means the money change caused by a 1-pip move, for a specific position size and for a specific account currency. It answers: “If EUR USD moves by 1 pip, how much does my account balance change?”
Because “money change” depends on your contract size and account currency, pip value is not a single universal number. You compute it using pip size, the instrument’s position size, and any needed currency conversion.
Core mechanics: formulas you can verify
Step 1: write the pip size for EUR USD
Assumption (typical quoting):
- Pip size (price increment) for EUR USD = 0.0001 (in USD terms per EUR).
In general form:
- 1 pip = pip_size × quote_currency_per_1_base
- Here: pip_size = 0.0001 and base = EUR, quote = USD.
Step 2: convert price movement into “quote-currency value”
Let:
- N = your position size in base currency units (EUR notional)
- pip_size = 0.0001 for EUR USD
A 1-pip move changes the EUR notional’s value in the quote currency (USD) by:
- ΔUSD per pip = N × pip_size
This is the key bridge: pip size (a price move) times notional (quantity) gives a value in the quote currency.
Step 3: translate quote-currency value into account currency
Let:
- C = your account currency
Then:
- Pip value in account currency = (ΔUSD per pip) × conversion_rate
How you choose conversion_rate depends on where C sits relative to USD.
Case A: account currency is USD
If C = USD, no conversion is needed:
- Pip value = N × 0.0001
Case B: account currency is EUR
If C = EUR, you convert USD back to EUR. Let FX(EURUSD) mean the market rate expressed as USD per 1 EUR (so EURUSD = USD/EUR). Then:
- Pip value (EUR) = (N × 0.0001) / (EURUSD)
Reason: the numerator is in USD; dividing by USD per EUR yields EUR.
Case C: account currency is neither USD nor EUR
If C is a third currency, you typically convert USD to C using an additional FX rate. Let FX(USDC) mean C per 1 USD. Then:
- Pip value (C) = (N × 0.0001) × FX(USDC)
Step 4: include contract size units (if your platform uses lots)
Many platforms express position size as lots. If your instrument defines 1 lot as L EUR notional, then:
- N = lots × L
- Pip value = (lots × L) × 0.0001 (then convert currency if needed)
This is linear: pip value scales directly with notional.
Evidence or example: compute a pip value with stated assumptions
Assume:
- EUR USD pip size = 0.0001
- Position notional N = 50,000 EUR
- Account currency is USD
Then:
- ΔUSD per pip = 50,000 × 0.0001 = 5.00 USD
- Pip value = 5.00 USD per pip
Now change only the account currency to EUR. Assume EURUSD rate is 1.1000 USD per 1 EUR (a hypothetical example value, used only to illustrate the conversion step):
- USD per pip = 5.00 USD
- Convert to EUR: Pip value (EUR) = 5.00 / 1.1000 = 4.5455… EUR
The pip size did not change; only the conversion changed because the account currency changed.
Material limitation: pip size convention and fractional pricing
Some systems quote fractional pips (for example, “pipettes” of 0.00001) or use different naming conventions. Your calculation must use the pip increment your platform defines for EUR USD, not a fixed assumption.
If your data feed defines the smallest price step as 0.00001, then the money move for “1 step” would be half? one-tenth? of a traditional pip depending on the step definition. The correct approach is the same: replace pip_size with the increment your platform uses.
Limitations and risks: where calculations can fail
- **Your pip size may differ from the typical 0. 0001 rule. ** Verify the platform’s definition of “pip” or “pip size” for EUR USD. 2. **Conversion depends on the FX rate you use at valuation time. ** Pip value in non-USD/non-EUR accounts changes with the conversion rate used. 3. **Position size units matter. ** If the platform defines “1 lot” differently than you expect, pip value scales proportionally and can be off by a factor. 4.