In forex trading, a pip represents the smallest incremental change in the exchange rate of a currency pair. For most currency pairs, one pip equals 0.0001. For example, if the EUR/USD moves from 1.1050 to 1.1051, that 0.0001 change is one pip.
Pips convert minor currency price movements into a "standard measurement", which traders can use to calculate potential gains, losses, and risk. However, calculating the value of each pip manually can be difficult and error-prone, as it involves multiple inputs.
This is why many forex traders use a pip calculator to determine the monetary value of price movements more easily.
What is a Pip Calculator?
A pip calculator is an online digital tool that calculates the monetary value of a pip movement for a forex trade. Using it, traders can assess how much money is gained or lost when the price of a currency pair moves by "one pip".
Most forex pip calculators are based on the following formula:
Pip Value = (Pip Size ÷ Exchange Rate) × Trade Size
Where,
- Pip Size = The decimal value of one pip. For most currency pairs, this is 0.0001. For JPY pairs, it is generally 0.01.
- Exchange Rate = The current price of the currency pair.
- Trade Size = The total size of the position, usually expressed in the base currency. If the calculation uses lots, the lot size must first be converted into the corresponding trade size.
How To Use a Pips Calculator?
Trade246 offers a free pip calculator that can be used multiple times without logging in or creating an account. After entering the required details, the calculator instantly determines the total Position Size and Value Per Pip (in USD).
To calculate the pip value, all you have to do is enter the following trade details:
A) Currency Pair
This is a dropdown field where the relevant forex pair can be selected. The selected pair determines the currencies involved and the exchange rate used in the calculation. Some available options you can select from are:
- EUR/USD
- GBP/USD
- AUD/USD
- NZD/USD
- USD/JPY
- USD/CHF
- USD/CAD
- USD/INR
- EUR/GBP
- EUR/JPY
- GBP/JPY
B) Lot Size
In this dropdown field, you are required to select the size and type of your lot. The available options are
- Standard (1.0 lot)
- Mini (0.1 lot), and
- Micro (0.01 lot)
Note: The lot size indicates the quantity of currency being traded and directly affects the monetary value of each pip.
C) Number of Lots
Enter the total number of lots being traded. For example,
- If the trade uses two standard lots, enter 2.
This helps the pip profit calculator to determine the total position size and corresponding pip value.
D) Currency Price of Pair
Lastly, enter the current exchange rate of the selected currency pair. For example,
- Suppose EUR/USD is trading at 1.1000, the currency price would be 1.1000.
This rate is used along with the pip size and trade size to calculate the value of one pip. After entering all these required details, the calculator shows the result instantly.
5 Major Benefits of Using a Pip Calculator
A pips calculator converts a minor price movement in a currency pair into a monetary value. This makes it easier to assess how much a trade could gain or lose when the exchange rate moves by a certain number of pips.
For a better understanding, let's check out some primary benefits:
1. Risk Management
A pip value calculator determines the money value attached to each pip for a particular trade. Such a calculation is highly important as the same number of pips can represent different amounts of money depending on the lot size and currency pair.
Additionally, through pip value, traders can assess potential losses before entering a trade.
2. Better Trade Assessment
Knowing the pip value allows traders to estimate the potential profit or loss associated with a price movement before placing a trade. For example,
- Suppose in the currency pair XAU/USD, a trade has a pip value of $10.
- After some time, the price moves 20 pips in the trader's favour.
- Now, the resulting gain would be $200 ($10 × 20 pips), before applicable charges and other costs.
- Similarly, a 20-pip movement in the opposite direction would represent a $200 loss.
In this way, an XAU-USD Pip Calculator gives traders a monetary reference when assessing a trade.
3. Fewer Manual Calculation Errors
Calculating pip value manually can involve several variables, such as the currency pair, pip size, exchange rate, lot size, and number of lots. A mistake in any of these inputs can produce an incorrect result.
A pip calculator performs the calculation based on the information entered and reduces the need for manual arithmetic.
4. Consistent Risk Calculation
By using a pip value calculator, traders can apply the "same calculation method" across different forex trades. Realise that pip value changes with factors such as trade size, currency pair, and exchange rate.
Thus, manually estimating it for every position can produce inconsistent results. Using the same calculator and entering the relevant trade details provides a common basis for assessing pip values across trades.
5. Free to Use Without Login
The Trade246 pip calculator is free to use and does not require any registration or login. Traders can use the calculator multiple times to check the pip value for different currency pairs, lot sizes, and trade quantities.
