Direct answer
“Pip value” is the monetary amount you would gain or lose for a one-pip move in a given currency pair, expressed in your account currency. The idea is the same even when the price move is driven by an employment-related event: employment affects the exchange rate; pip value converts that exchange-rate change into money.
Because your account currency may differ from the pair’s quote (or base) currency, the calculation usually has two stages: (1) compute the pip’s value in the pair’s quote-currency terms, then (2) convert that amount into the account currency using an assumed conversion rate.
Mechanism or definition
A pip is a standardized increment used to quote FX prices. In many retail platforms, “one pip” corresponds to a fixed decimal change (commonly 0.0001 for most pairs, and sometimes 0.01 for JPY pairs). The exact pip size is platform- and instrument-specific, so you must use the same pip definition that the platform uses.
A typical pip value model uses four inputs:
- Lot size / position size: how much currency exposure you control (often expressed in “units” such as 100,000 base currency units for a standard lot).
- Pip size: the price increment that defines one pip.
- Pair structure: base currency and quote currency in the trading symbol (e.g., BASE/QUOTE).
- Account currency: where you want the result (e.g., EUR account, but pair is USD/JPY).
Canonical two-stage formula
Let the traded pair be BASE/QUOTE.
- Compute pip value in quote-currency terms For instruments where pip value is derived from the quote move, a common relationship is:
- Pip value (QUOTE currency) ≈ (Position units × Pip size) / Price where Price is the current pair price expressed in QUOTE per BASE.
- Convert quote-currency pip value to account currency If your account currency = QUOTE, then the conversion step is not needed. If your account currency is different, convert using a conversion rate that expresses how many account-currency units equal one quote-currency unit. In general terms:
- Pip value (Account currency) = Pip value (QUOTE currency) × Conversion rate
What changes when the account currency matches base
If your account currency equals the base currency instead of the quote currency, the conversion route may use the reciprocal conversion rate (conceptually: you still convert money from the currency you computed first into the account currency). The key is to keep the units consistent: pip value is a money amount, so conversions must map from one currency to the other without mixing “price” units and “money” units.
Evidence or example
Example 1: account currency equals quote currency
Assumptions (choose values for illustration only):
- Pair: BASE/QUOTE
- Position size: 100,000 units of BASE (one standard lot)
- Pip size: 0.0001
- Pair price: 1.2500 QUOTE per BASE
Step 1: pip value in QUOTE currency:
- Pip value ≈ (100,000 × 0.0001) / 1.2500
- Pip value ≈ 10,000 / 1.2500
- Pip value ≈ 8,000 QUOTE-currency units per pip
Step 2: conversion to account currency If your account currency is QUOTE, pip value in account currency remains 8,000 per pip.
Example 2: account currency differs from quote currency
Keep the same assumptions as Example 1, but suppose:
- Account currency is ACCOUNT
- You need a conversion factor where 1 QUOTE currency unit = C ACCOUNT currency units
Then:
- Pip value (Account) = 8,000 × C
If you also choose to obtain C from another pair (a cross rate), you must ensure it reflects QUOTE→ACCOUNT direction. If you use the opposite direction by mistake, you effectively invert C and the result changes materially.
Limitations and risks
- Wrong pip size: If you use 0. 0001 for an instrument that uses a different pip definition, every pip value you compute will scale incorrectly. 2) Contract-size mismatch: Position size may not equal “units of base” in your mental model. Some instruments define lot size differently. 3) Conversion-route errors: When account currency differs from quote currency, using the reciprocal conversion rate (QUOTE→ACCOUNT vs ACCOUNT→QUOTE) is a common failure mode. 4) Price vs pip-move confusion: The conversion step uses a conversion rate for money units; the pip step uses a price increment. Mixing these (for example, using the pip size where a price is required) breaks the logic.