Therefore, for most major currencies:

Therefore, for most major currencies:

1 Basis Point = 1/10000

th of 1% = 1 Pip

While the Japanese Yen, which is only quoted to the hundredths place follow the traditional

definition of:

1 Basis Point = 1/100

th of 1% = 1 Pip

This is not cut and dry, though. The

depending on:

1) The currency pair being traded

2) The base currency used in your trading account.

3) The

Now we have a new term to define before we proceed: What is 'lot size'?

actual value of a pip can be fixed or variable,lot size of your trade.

Lot size

about volume. Almost no one trades unit for unit, or 'dollar for dollar', although some brokers

do allow this.

The typical lot size for most trades, though, is in multiples of ten:

refers to the size of your transaction or 'contract'. Again, trading on Forex is all



A Standard Lot = 100,000 units of the base currency



A 'Mini' Lot = 10,000 units of the base currency



A 'Micro' Lot = 1,000 units of the base currency

Calculating Pip Values

This is one area where new investors can become very confused. This is because pip

values are dependent on multiple variables.

The standard definition says that a pip is equal to a change of 1/100

currency, but this change

Instead, one must take into account whether the currency pair in question has a fixed value

or a variable value

decimal places

As you saw earlier, the EUR/USD pair is typically quoted to 4 decimal places, such that if

the exchange rate were to shift from '1.4436' to '1.4437', you can say that is has gained a

full basis point, or 1 pip.

Contrast this with the USD/JPY pair, which is only quoted to 2 decimal places. In this case, a

move from 113.27 to 113.26 represents 1 pip at a value of .

01.

Before you get too confused...

You should know that there is

examples used in this report so far are just that:

only one reliable source for quotes: Your Broker. Theexamples.

I've shown you EUR/USD pairs with more than 4 decimals places in the quote - and I've

shown you a USD/JPY pair with more than 2 decimals in the quote.

Do not let this confuse you.

The fact is that you can get quotes online from a variety of public sources, but these quotes

do not reflect the true buy/sell rates

Instead, they represent what is known as '

Mid-market rates are calculated by finding the

transactions throughout the entire market. Further, every broker has its own set of

fees or overhead charges per transaction, and these fees are

provide.

So, when you look at the mid-market rate, what you're looking at is an average, not an exact

quote. This is why the number of decimal points appears to vary.

Once you have your own account with a reputable broker, though, you'll receive accurate

quotes which follow the 'rules' regarding how many decimal points out a quote should go on

a given currency pair.

.mid-market rates'.average between buy and sell rates on highvolumeincluded in the quotes they

A Typical Pip Value Calculation

The EUR/USD pair has a

base currency. Similarly, a 'Mini' Lot transaction of EUR/USD has a fixed value of U.S. $1.

In order to calculate the actual pip value of the base currency within the pair, you must

divide 1 pip by the current exchange rate, and then multiply the result by lot size:

EUR/USD = 0.0001 (1 pip) / 1.30000 (exchange rate) =

EUR 0.0000769 x 100,000 (standard lot) = EUR 7.69

Next, we want to get our result into the base currency of our account. If your account uses

U.S. Dollars for the base currency, you would multiply again by the exchange rate:

7.69 x 1.30000 = $10.00 pip value
fixed value of U.S. $10 for Standard Lots, or 100,000 units ofth in the value of ais not measured solely against the previous value of the currency!relative to the lot size. Further, one must take into account how manyare quoted for the pair.

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