10. What is a Pip’s Worth?

Now that we have discussed what a LOT is, it's time to discuss what a PIP is worth. 

You will remember from our second educational blog (see here), that a PIP is the measure of the change in the exchange rate of a currency pair. 

But, how do we calculate the value of a PIP in terms of its monetary worth? The amount of the BASE CURRENCY (in LOTS) times the number of PIPS, equals the amount in QUOTE CURRENCY. 

If you want to find out how much 1 PIP is worth in EURUSD (Euro to U.S Dollar) per LOT (or 100,000 units) of the BASE CURRENCY, it would look like this:

For Yen-based currency pairs, the result is a little bit different because the pip corresponds to the second decimal digit.

Let's take a look at a practical example using a trade. A trader buys 1.5 LOTS of GBPUSD (British Pound to U.S Dollar) at 1.3030. Once the price rises, for example to 1.3043, he decides to close his position. His made a profits of 13 PIPS. 

But how much did he make it in Dollars? The formula in the case of GBPUSD (British Pound to U.S Dollar) here, would look like this:

That's how you calculate the monetary value of a PIP! Thank you for visiting my blog to learn the basics of forex. See you on the next blog. Stay Blessed :-)