The pip value needs to be calculated with the currency outcome in mind. Currency pairs can be segmented into direct, indirect and cross currency pairs.
Calculating Direct Currency Pairs
If calculating in AUD then a direct currency pair calculation is selected. This refers to the quote currency to be the currency of the outcome, e.g. Direct = CHF/AUD,
Direct currencies where AUD is the quote currency then the following formula can be used: 1pip = lot size (100,000) x tick size (0.0001) = $10
Calculating Indirect Currency Pairs
If calculating in AUD and the base currency is AUD, then an indirect formula can be used, e.g. Indirect = AUD/USD, AUD/JPY, AUD/NZD, AUD/EUR
1pip = lot size (100,000) x tick size (0.0001)/ currency rate = $10.78
For example if the UAD/USD is trading at 0.92710 then: 1Pip = 100,000 x 0.0001 / 0.92710 = $10.78
Calculating Cross Currency Pairs
Direct currencies where AUD is not either the quote or base currency, e.g. Cross = EUR/USD, GBP/USD, GBP/JPY, USD/CAD, then the following formula can be used
1pip = lot size (100,000) x tick size (0.0001) x AUD/base currency/ currency rate = $10.45
For example if the EUR/USD is trading at 1.48375 then and the EUR/AUD is trading at 1.55110 then: 1Pip = 100,000 x 0.0001 x 1.55110 / 1.48375 = $10.45
Position and Lot Size Calculator
To make it easier for traders we have created a position and lot size calculator.
Read the full article and more download our FREE Insiders Guide to Forex and CFDs. That’ll Help to Improve Your Forex & CFD Trading Skills and Assist You to Make Consistent returns!