Definition: what “pip value” means
“Pip value” is the monetary value of a move of one pip (the smallest quoted price step) for a specific currency pair position. Pip value depends on:
- Pip size (how much the quoted price changes per pip)
- Position size (often in units of the base currency or lots)
- Contract specification (for example, how many units correspond to one lot)
- Conversion to your account currency (using exchange rates)
This matters for AUD crosses because your account currency may be different from both currencies in the pair.
Mechanics: starting point and general formula
Step 1: compute the pip move in quote-currency terms
For most major FX quotes, a “pip” corresponds to a 0.0001 price move when the quote has four decimal places. Some pairs use a different pip size (for example, when quoted with fewer decimals), so you must use the actual pip definition of the instrument you trade.
Let:
- p = pip size in price units (e.g., 0.0001)
- Q = position size expressed as “units of the base currency” for the pair
- A = exchange rate quoted as Base/Quote (the pair’s current price)
A one-pip move changes the pair price by ΔA = p. That produces a value change in the quote currency of:
- Pip value in quote currency = Q × p
This expression is the simplest form because the quote-currency cashflow comes directly from multiplying the pip price change by how many base units you hold.
Step 2: convert the quote-currency pip value into account currency
If your account currency is not the quote currency, you convert the pip value using a suitable exchange rate.
Let:
- Cacc = account currency
- Cquote = quote currency of the AUD cross
- FX conversion rate = exchange rate that converts Cquote → Cacc
Then:
- Pip value in account currency = (Q × p) × (rate to convert Cquote into Cacc)
This is where “routing” comes in: you choose an exchange-rate path that links Cquote to Cacc using available tradable rates (a direct conversion if available, or an intermediary conversion if not).
Evidence or example: AUD cross routing across account currencies
Below are common calculation patterns. They show the mechanism, not a promise of any particular broker quote.
Example A: account currency equals the quote currency
Suppose you hold a position in an AUD cross quoted as Base/Quote, and your account currency is Quote.
Assumptions for the example:
- Pip size is p for that instrument
- Position size is Q base units
Then:
- Pip value (account currency) = Q × p
No additional conversion step is required.
Example B: account currency equals AUD (common for AUD crosses)
If your account currency is AUD, then converting pip value depends on whether AUD is the quote currency or the base currency of the AUD cross.
- If AUD is the quote currency of the pair: the quote-currency conversion is trivial, so Pip value in account currency = Q × p.
- If AUD is the base currency of the pair: the pip value produced by Q × p is in the other currency (the quote currency of the pair), so you must convert that quote currency into AUD.
In the second case:
- Pip value in account currency = (Q × p) × (conversion rate from pair quote currency to AUD)
Example C: account currency is neither AUD nor the pair quote
If your account currency is something else (say EUR or JPY), you still use the same two-step structure:
- Compute quote-currency pip value: Q × p
- Convert quote currency into account currency: multiply by the appropriate conversion rate (direct or via an intermediate pair)
A useful way to verify the formula is to track units:
- Q × p has units of “quote currency per pip,” so the multiplier must be “account currency per unit of quote currency.”
Material limitations and failure modes
1) Pip size can differ by instrument
Not every FX quote uses a 0.0001 pip. If the instrument uses a different decimal convention, using 0.0001 would produce the wrong pip value. Always use the pip definition tied to the exact AUD cross instrument.
2) Lot size and contract rules must match your position size
The formula uses Q (units of base currency).