FOREX PIP & PROFIT/LOSS CALCULATIONS
Understanding how to calculate pip value and profit/loss requires a basic knowledge of currency pairs and crosses. Please click on the appropriate link below for more information:
USD as Base Currency (e.g. USD/CHF whereby U.S. Dollar is first currency)
USD as Quote Currency (e.g. EUR/USD whereby U.S. Dollar is second currency)
Cross-Rates (e.g. GBP/JPY whereby U.S. Dollar is not quoted directly)
The examples below are not actual trading recommendations and are for educational purposes only.
USD AS BASE CURRENCY
Most currencies are traded directly against the U.S. Dollar (USD), and these pairs are referred to as direct rates. An example is the USD/CAD (Canadian Dollar). The USD is the "base currency," the CAD is the "quote currency" and the rate quote is expressed as units per USD. An example of a direct rate is as follows: USD/CAD trading at 1.1500 means that 1 USD = 1.1500 CAD.
Calculating Pip Value. Pip stands for "percentage in point" and refers to the smallest incremental price move of a currency. Tick size is the smallest possible change in price. Pip value is calculated according to the following formula:
pip = lot size x tick size / current rate
Example: 100,000 USD/JPY contract currently trading at 120.50:
1 pip = 100,000 (lot size) x .01 (tick size) / 120.50 (current rate) = USD $8.30
Calculating P/L (Profit/Loss). P/L is calculated as follows:
selling price - purchase price = P/L
Example: 100,000 USD/JPY contract initially bought at 120.50 then sold (closed) at 120.30:
120.30 (selling price) - 120.50 (purchase price) = -.20 pip difference = 20 pip loss
To further convert the above P/L to USD, use the above "Calculating Pip Value" as follows:
1 pip = 100,000 (lot size) x .01 (tick size) / 120.30 (current rate) = USD $8.31
Therefore: USD $8.31 (pip value) x 20 (pip loss) = USD $166.20 loss
USD AS QUOTE CURRENCY
Currency pairs where the USD is the quote currency are sometimes referred to as "inverse". This holds true for such currencies as the EUR (Eurodollar), GBP (Great British Pound aka Pound Sterling or Cable), NZD (New Zealand Dollar) and the AUD (Australian Dollar aka Aussie Dollar). *Please note that EUR/USD is sometimes referred to as "Euro-dollar" but should not be confused with Eurodollar futures contracts which are completely different. An example of an indirect rate is as follows: EUR/USD trading at 1.1700 means that 1 EUR = 1.17 USD.
Calculating Pip Value. Pip stands for "percentage in point" and refers to the smallest incremental price move of a currency. Tick size is the smallest possible change in price. Pip value is calculated according to the following formula:
pip = lot size x tick size
Example: 100,000 GBP/USD contract:
1 pip = 100,000 (lot size) x .0001 (tick size) = $10.00 USD
Calculating P/L (Profit/Loss). P/L is calculated as follows:
selling price - purchase price = P/L
Example: 200,000 GBP/USD contract initially bought at 1.7505 then sold (closed) at 1.7540:
1.7540 (selling price) - 1.7505 (purchase price) = +.0035 pip difference = 35 pip profit
To further convert the above P/L to USD, use the following calculation:
pip profit (loss) x lot size x tick size = USD profit (loss)
35 (pip profit) x 200,000 (lot size) x .0001 (tick size) = USD $700 profit
CROSS RATES
Currency pairs that do not involve the USD are referred to as cross rates. Even though the USD is not represented in the quote, the USD rate is usually used in the quote calculation. An example of a cross rate is the EUR/GBP. Again, the EUR is the base currency and the GBP is the quote currency.
Calculating Cross Rate Pip Value. Pip stands for "percentage in point" and refers to the smallest incremental price move of a currency. Tick size is the smallest possible change in price. The base quote is the current base pair quote. Pip value for cross rates are calculated according to the following formula:
pip = lot size x tick size x base quote / current rate
Example: 100,000 EUR/GBP contract currently trading at .6750, and EUR/USD currently trading at 1.1840:
1 pip = 100,000 (lot size) x .0001 (tick size) x 1.1840 (EUR/USD base quote) / .6750 (current rate) = USD $17.54
Calculating Cross Rate P/L (Profit/Loss). Calculating P/L for cross rates is calculated as follows:
selling price - purchase price = P/L
Example: 100,000 EUR/GBP contract initially sold at .6760 then bought (closed) at .6750:
.6760 (selling price) - .6750 (purchase price) = +.0010 pip difference = 10 pip profit
To further convert the above P/L to USD, use the above "Calculating Cross Rate Pip Value" as follows:
1 pip = 100,000 (lot size) x .0001 (tick size) x 1.1840 (EUR/USD base quote) / .6750 (current rate) = USD $17.54
Therefore: USD $17.54 (pip value) x 10 (pip profit) = USD $170.54 profit
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