What “pip value” means before you calculate it
A pip is a standardized unit of price change used in many forex quotes. Pip value is the monetary amount you would gain or lose for a one-pip move, for a specified trade size (lot size) and a specified account currency.
For USD/CAD, the pair is quoted as USD price versus CAD, so a small change in the USD/CAD exchange rate corresponds to a pip movement. The pip value is not just a property of “USD/CAD”; it also depends on:
- the instrument’s pip size (how much the price must move to count as 1 pip),
- the contract/lot size used by the broker or platform,
- your account currency (because you may need to convert the pip profit/loss into your account currency).
Core mechanics: the general pip value formula
A practical way to compute pip value is to break it into two steps: (1) compute the pip’s price movement in “rate terms,” then (2) convert to the account currency.
Step 1: Use the pip size and lot size
Let:
- pip_size = the numeric price increment that equals 1 pip for the instrument (for many FX quotes it’s commonly 0.0001, but always confirm for your specific instrument),
- units_per_lot = how many base currency units one “standard lot” represents in that contract (for many forex contracts it’s commonly 100,000 units, but confirm your instrument spec),
- lot_size = number of lots.
Then the value of one pip in terms of the base/quote currency depends on how the contract defines profit and loss. In the common FX convention where USD/CAD’s “rate” is CAD per USD, a one-pip move changes the amount of CAD associated with the USD exposure.
A commonly used starting point (assuming the contract profit/loss is based on the rate change) is:
- pip_value_in_quote_currency = pip_size × units_per_lot × lot_size
For USD/CAD, the quote currency is CAD, so this step yields a pip value in CAD.
Step 2: Convert pip value into your account currency
If your account currency is CAD, then pip value is already in the account currency (under the assumptions above).
If your account currency is not CAD, you convert using an appropriate FX conversion rate that matches the currencies involved in your pip-value amount.
Examples of conversion logic (no live rates assumed):
- If account currency = USD, but your pip value from Step 1 is in CAD, then you need a CAD→USD conversion. Using a conversion rate USD/CAD (which expresses CAD per USD), the CAD→USD conversion factor is the reciprocal: 1 / (USD/CAD rate).
- If account currency = another currency, you convert CAD to that currency via an intermediate cross, provided you can express a consistent conversion rate.
So the general pattern is:
- pip_value_in_account_currency = pip_value_in_CAD × (conversion factor from CAD to account currency)
Evidence or example: USD/CAD with different account currencies (using explicit assumptions)
Below is a self-checkable numeric example. The numbers are illustrative only, and you can replace them with the pip_size, units_per_lot, and conversion rates from your environment.
Assumptions for the example
- pip_size = 0.0001 (1 pip = 0.0001 in the quoted USD/CAD rate)
- units_per_lot = 100,000 USD per standard lot
- lot_size = 0.10 lots (10% of a standard lot)
- quote currency for USD/CAD = CAD
- conversion uses the same USD/CAD rate you would use for an approximate transformation (mid/spot vs executed rates can change results; see limitations)
1) Account currency = CAD
1 pip change: 0.0001 USD/CAD.
Using the “pip value in quote currency” approach:
- pip_value_in_CAD = pip_size × units_per_lot × lot_size
- pip_value_in_CAD = 0.0001 × 100,000 × 0.10
- pip_value_in_CAD = 1.0 CAD
So for this illustrative setup, 1 pip ≈ 1 CAD.
2) Account currency = USD
You still start by computing 1 pip in CAD (from Step 1), then convert CAD to USD.
If USD/CAD is R (CAD per USD), then 1 USD = R CAD, so 1 CAD = 1/R USD.
If pip_value_in_CAD = 1.0 CAD, then:
- pip_value_in_USD = 1.0 × (1 / R)
If (for illustration only) R = 1.35, then pip_value_in_USD ≈ 1 / 1.35 ≈ 0.7407 USD per pip.
3) Account currency differs again (USD-equivalent routing)
If your account currency is, say, EUR, you need a consistent CAD→EUR conversion.