Direct answer
Pip value (the money change of one pip move) is calculated from the pip size and your position size, then converted into your account currency if needed. For high liquidity pairs, the mechanics are the same as for any FX pair; liquidity mainly affects how easily prices and spreads change, not the core pip-value formula.
Mechanism or definition
A pip is the smallest standard price increment used for quoting the pair. The “pip size” depends on how the pair is typically quoted:
- Many major pairs are quoted with 5 decimal places; in that case, 1 pip is commonly 0.00010 (one tick at the 4th decimal place).
- Pairs quoted with 3 decimal places (JPY quoted) are commonly treated with 1 pip = 0.010.
Assume:
- You trade a notional position of N units of the base currency.
- Your pip size is p (in price terms).
- The pair is quoted as BASE/QUOTE.
Step 1: Convert one pip move into quote-currency value
A one-pip move changes the pair price by p. The change in value, expressed in the quote currency, is:
Value in QUOTE currency per pip = N × p
This works as long as the standard pip size p matches the pair’s quoting convention.
Step 2: Convert into account currency (if needed)
Your account currency may be the QUOTE currency, the BASE currency, or a third currency.
Let A be your account currency.
Case 1 — A equals QUOTE:
- Pip value in account currency is the same as the QUOTE-currency pip value.
Case 2 — A equals BASE:
- You need to convert quote-currency money into base currency. A basic approach is:
- Convert using the inverse rate (because the quote money must be expressed back in base money).
Case 3 — A is a third currency:
- Convert the QUOTE-currency pip value into A through the necessary FX conversion rates (typically one or more intermediate conversions, depending on what rates you have available).
In all cases, you must use a clearly stated exchange rate definition (bid vs ask, or a mid/reference rate) for the conversion. Pip value itself is a calculator step; the choice of conversion rate introduces a measurable difference.
Evidence or example
Example assumptions
- Pair: EUR/USD (BASE=EUR, QUOTE=USD)
- Pip definition: 1 pip = 0.00010
- Position size: N = 100,000 EUR
Compute pip value in quote currency (USD)
Value in USD per pip = N × p = 100,000 × 0.00010 = 10 USD per pip.
Convert to an account currency that is not USD
If your account currency is, for instance, GBP, you would convert the 10 USD-per-pip into GBP using an FX rate for USD/GBP (or GBP/USD with inversion). For example, if you use an exchange rate of USD→GBP defined as r GBP per USD, then:
- Pip value in GBP per pip = 10 × r.
This “route” step is the same conceptually for any account currency: you convert the pip move money from QUOTE into A.
Note on “high liquidity pairs”
For high liquidity pairs, prices and spreads tend to be comparatively efficient, but the pip-value formula still relies on:
- the pip size convention, 2) your lot/notional size, and 3) FX conversion for your account currency.
Limitations and risks
- Pip-size convention mismatches. Different instruments and quote formats can use different decimal conventions; using the wrong p will produce the wrong pip value.
- Bid/ask and rate-definition ambiguity. Pip-value conversion can change depending on whether you use mid, bid, or ask for the currency conversion step.
- Contract specification differences. Some venues express position size in “lots” with a defined contract size. If you treat “one lot” as a fixed N without confirming the contract definition, results can be off.
- Costs are not included. Pip value measures price-move value only. Commission, swap/rollover, and spread/transaction costs can materially affect the realized money change.
- Conversion routing assumptions. If converting through intermediate currencies, you must state the route and rate sources; different routes or rounding can shift the result.
Verification or next question
To verify independently:
- Identify BASE and QUOTE from the pair name. 2) Confirm the pip size p for the quoted format you are using.