Calculating Pip Values by Karl Montevirgen
It’s All Transparent
Does it make a difference if your domestic currency is the first currency or second currency? It sure does, and it affects how the currency is valued. Here are some different scenarios you can encounter and how you can calculate the pip values in each of these situations.
Prior to opening any live positions in the FX markets, it is advisable for traders to fully understand how to calculate pip values so they know their positional risks and can determine appropriate position sizes. Because currencies are traded in pairs, for example, the EUR/USD, the pip-value calculations will differ according to a currency’s placement within the pair structure. In other words, pip value calculation will differ according to whether your domestic currency is the base currency (first currency) or quote currency (second currency). I will go over this in more detail later. If you are trading a pair in which your domestic currency is neither the base nor quote currency, then you will have to calculate the value of one of the currencies (base or quote) and convert that to your domestic currency in order to find the pip value.