Direct answer: what a worked example means
A worked example is a fully specified numerical scenario where you choose the inputs (lot size, pip size, exchange rate assumptions, and account currency) and compute the resulting pip value. Here, “pip value” means the money change from a move of one pip for the position size you defined.
Because different currency pairs and account currencies can change the steps, the example below states every assumption explicitly so you can redo it with your own pair and platform settings.
Mechanism or definition: lot size and pip value
Lot size in forex is the standard quantity used to size positions. A common convention is:
- 1.0 standard lot = 100,000 units of the base currency.
- 1.0 mini lot = 10,000 units of the base currency.
- 1.0 micro lot = 1,000 units of the base currency.
Pip is a standardized “place” move in quoted FX prices. In many pairs, one pip = 0.0001 of the quoted price; in some cases it can differ (for example, pairs quoted with two decimals for pips). For this worked example we assume the common case.
Pip value converts a one-pip price change into money:
- First compute how much quote currency changes for one pip.
- Then convert that quote-currency amount to account currency, if needed.
Evidence or example: one fully specified calculation
Assumptions
To keep the example self-contained, assume:
- You trade a currency pair where pip = 0.0001 (typical 4-decimal quote).
- The account currency equals the quote currency of the pair, so no extra conversion step is needed.
- Quote price is only needed for conversion when account currency differs; here we assume it matches.
- Position size is 1.00 standard lot = 100,000 units of the base currency.
- You want the pip value per one pip.
Step 1: compute the quote-currency change per pip
For a pair priced as Base/Quote, a one-pip move of 0.0001 changes the value by:
- Quote change per unit of base ≈ 0.0001 (in quote currency units per base unit).
- For 100,000 base units:
- Quote change = 100,000 × 0.0001 = 10 (quote currency units).
So with the assumptions above:
- Pip value = 10 quote-currency units per pip for 1.00 standard lot.
Step 2: scale for other lot sizes
If pip value scales linearly with lot size (the standard assumption for straight position sizing), then:
- 0.10 standard lot → 1 quote unit per pip
- 0.01 standard lot → 0.10 quote units per pip
- 2.00 standard lots → 20 quote units per pip
What changes if account currency differs?
If your account currency is not the quote currency, you must convert the quote-currency pip amount into account currency using an exchange rate assumption. That conversion rate can change the final number even when the pip size and lot size are the same.
Limitations and risks: what can fail in real conditions
- Pip definition can differ by instrument. Some pairs use different pip sizes (or different decimal conventions), so using 0.0001 blindly can be wrong.
- Account currency mismatch changes conversion. If your pip value must be expressed in account currency, conversion requires an exchange-rate assumption that can differ from execution-time rates.
- Platform mechanics can affect realized outcomes. Costs and execution details (spreads, commissions, and rounding) can make the money change from one pip move not match the simplified pip value you computed.
- Non-linear effects are possible. If a platform uses different contract specifications or margin/contract sizing rules, pip value may not scale perfectly with lot size.
Verification or next question: how to independently check your own pip value
To verify, repeat the calculation with your exact inputs:
- confirm the pip size used for your pair (from the instrument specification),
- confirm your lot-to-units mapping on your platform,
- confirm whether account currency matches quote currency, and if not, include a conversion step,
- check how the platform defines the pip used for pricing.
If you tell me your pair (base/quote), your account currency, and your platform’s pip convention, you can plug them into the same method and compute a worked pip value for the lot size you choose.