Pip value

Pip value quantifies the profit or loss in the account's base currency for each one-pip price change. It is calculated by dividing one pip (0.0001 for most pairs, or 0.01 for JPY pairs) by the current exchange rate, then multiplying by the lot size. For example, a standard lot (100,000 units) of EUR/USD typically has a pip value of $10. This value changes with the quote currency and the exchange rate.

Understanding pip value is crucial for accurate risk management and position sizing. Traders use it to determine the potential monetary impact of a trade before entry. For instance, if a stop-loss is 50 pips away, knowing the pip value allows calculation of the exact dollar risk for that trade. This helps align trade size with a trader's defined risk tolerance per trade.