Definition: what pip value means
Pip value is the monetary change in your account that corresponds to a one-”pip” move in the traded instrument. It is not a market prediction; it is a unit conversion problem: you start with a standardized price increment (a pip) and convert that increment into money in your account currency.
For forex, a pip is commonly the 0.0001 move for most currency pairs, but pip size can differ for certain quote formats (for example, JPY pairs are often quoted with two decimals, so one pip is typically 0.01 in price). Always state the pip size your instrument uses before computing pip value.
The basic mechanics (a simple model)
Assume:
- Lot size is known (for example, 1.0 lot = 100,000 units of the base currency).
- You know pip size in price terms (e.g., 0.0001).
- The pair is quoted as BASE/QUOTE, meaning the exchange rate tells you how many QUOTE currency units you get for 1 unit of BASE.
- You want the value of 1 pip in your account currency.
Step 1: compute the pip move in price
A pip move in price is simply:
- price_move = pip_size
Step 2: translate the price move into base-currency terms
For a spot forex position, the notional exposure is based on the lot size in the BASE currency. A common way to express the pip value in QUOTE currency is:
- value_per_pip_in_quote = (lot_units) × pip_size
Where:
- lot_units = the number of BASE units represented by your lot size.
Step 3: convert from QUOTE currency into account currency
If your account currency equals QUOTE, then:
- pip_value_in_account = value_per_pip_in_quote
If your account currency differs, you convert using an appropriate exchange rate. Conceptually:
- pip_value_in_account = value_per_pip_in_quote × (QUOTE_to_account_rate)
The “QUOTE_to_account_rate” depends on whether the conversion pair is quoted directly or needs inversion. For example:
- If you have a direct market rate QUOTE/ACCOUNT, you multiply by that rate.
- If you only have ACCOUNT/QUOTE, you invert it.
State which rate (and inversion) you used; the math is straightforward, but the direction is easy to mix up.
How this applies to low liquidity pairs
Low liquidity pairs usually do not change the math of pip value. The inputs can be less stable because price quotes and spreads can fluctuate more, and execution quality can vary. That can affect how consistently you can apply pip value using a single snapshot of rates.
Material practical effects to separate from the core formula:
- Wider or changing spread: The pip size in price terms is fixed by the instrument definition, but the cost of entering/exiting includes spreads and sometimes additional fees. Pip value itself does not include costs.
- Quote availability and conversion rates: If the account-to-quote conversion requires an additional currency pair that is also illiquid, the conversion rate you use may differ across providers or moments.
- Precision and platform conventions: Some platforms round pip size or quote decimals differently, which changes the final pip value by small amounts.
So, for low liquidity pairs, the main issue is not that pip value becomes different by definition; it is that the values you plug into the conversion (especially the account conversion rate) can be less consistent.
Evidence by example (with explicit assumptions)
Example assumptions (for illustration only):
- Pair: BASE/QUOTE
- Account currency: ACCOUNT
- Lot size: L lots
- pip_size: given by the instrument (use the correct pip definition for the pair)
- lot_units = L × 100,000 (if your platform uses the standard lot size)
Case A: Account currency equals QUOTE
- value_per_pip_in_quote = lot_units × pip_size
- pip_value_in_account = value_per_pip_in_quote
Case B: Account currency is not QUOTE
- pip_value_in_account = (lot_units × pip_size) × (QUOTE_to_account_rate)
You can compute QUOTE_to_account_rate by using a relevant conversion market quote, choosing direct multiplication or inversion based on the quotation direction.
Even without real-time data, you can verify internal consistency: if you change pip_size, pip value changes linearly; if you change lot size, pip value scales linearly; and if you invert the conversion direction, pip value should change in the corresponding reciprocal way.
Limitations and failure modes (important)
- Wrong pip definition: If you use 0. 0001 but the instrument’s pip size is different, the pip value will be incorrect. 2.