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Calculating PIP Value

  • #1
  • First Post: Feb 26, 2007 1:26am Feb 26, 2007 1:26am
Hi, I am new to this and am trying to come to grips with how PIP value is calculated.

For anything ending in USD 1 PIP = $1 that much I have worked out. Therefore it is fairly logical to extrapolate anything where the base currency is USD (USD/*). The money management forum goes into great detail on this.

Now what about other pairs, i think they are called Cross Rates? In particular I am interested in the NZD/JPY.

From my understanding the PIP value is determined by the USD value.

This in effect would mean that the PIP value changes with every tick! Is this correct?

Now the only reason it is tied to the USD value is because the base account which my money is stored in is in USD$. If my money was in NZD$ (for which I have failed to find a broker) then the PIP value for NZD/JPY would be constant as it is for all USD/* and */USD pairs.

Is this correct?

This appears to make it quite challenging to calculate your risk management calculations and your money management rules with any degree of certainty unless you are trading */USD or USD/* pairs.

Have I got this correct, or am I missing something fundamental?

Thanks.

Womble
  • #2
  • Feb 26, 2007 7:21am Feb 26, 2007 7:21am
Quoting womble

From my understanding the PIP value is determined by the USD value.

This in effect would mean that the PIP value changes with every tick! Is this correct?
Correct. But the value doesn't change very much so if you're off a few pips, it's not going to make a huge difference at all.


Quote
Now the only reason it is tied to the USD value is because the base account which my money is stored in is in USD$. If my money was in NZD$ (for which I have failed to find a broker) then the PIP value for NZD/JPY would be constant as it is for all USD/* and */USD pairs.

Is this correct?

No, it's not. The market doesn't care about your account. All cross pairs pip values are derived by calculating one pair against the dollar, then the result against the other currency.

Example: Nzd/Jpy is currently 85.40

1 pip = $100,00 lot size x .01 tick size x 0.7081 (Nzd/USD quote) / 85.40

= $8.29 per pip

Quote
This appears to make it quite challenging to calculate your risk management calculations and your money management rules with any degree of certainty unless you are trading */USD or USD/* pairs.

Have I got this correct, or am I missing something fundamental?

Womble

Yes, the value changes per pip, but not by much. Once you understand which calculations are needed, you can set up an Excel sheet, pop in the numbers and have your position size in a moment.
  • #3
  • Feb 26, 2007 7:30am Feb 26, 2007 7:30am
Here is a previous thread (How to Calculate Pip?) in this forum that you may find helpful.

http://www.forexfactory.com/showthread.php?t=8568
  • #4
  • Feb 26, 2007 1:09pm Feb 26, 2007 1:09pm
Thank you, I have had trouble grasping this concept fully.
  • #5
  • Feb 26, 2007 3:17pm Feb 26, 2007 3:17pm
Quoting Andrew's PF
No, it's not. The market doesn't care about your account. All cross pairs pip values are derived by calculating one pair against the dollar, then the result against the other currency.

Example: Nzd/Jpy is currently 85.40

1 pip = $100,00 lot size x .01 tick size x 0.7081 (Nzd/USD quote) / 85.40

= $8.29 per pip
I think that is a bit misleading. For money management purposes the value of a PIP should be calculated against your "account currency".

lets assume a Mini Account ...

If the pair in question is the AUD/NZD then 1 PIP is worth = NZD$1.

if the NZD/USD pair is worth 0.6547 then the AUD/NZD pair is worth USD$0.65/pip - (at that point in time) - if the AUD/NZD stays static but the NZD/USD moves the same PIP will be worth more (or less depnding on the direction the NZD/USD moved) in USD$. But it will ALWAYS be worth NZD$1.

A PIPs value is currency neutral at a point in time (tick) - worth the same amount in any currency based on exchange rates at that tick.

So for money management - where you are prepared to risk 1% of your account balance - you must ensure that you convert PIP values back to your "account currency".
  • #6
  • Feb 27, 2007 4:54am Feb 27, 2007 4:54am
Quoting womble
I think that is a bit misleading. For money management purposes the value of a PIP should be calculated against your "account currency".
There's nothing misleading about it. The value of all currencies in forex are calcuated using the USD. And do you know why? Standardization, that's why. A trader in Singapore buying from a trader in NY has to be on the same page to avoid any mistakes. Every forex trader (well, the ones who know what they're doing) can quickly calculate the pip value of any currency because it's the same formula for everyone.


If you're suggesting that the Forex market should tailor all transactions to the "account currency" of each customer, then you've struck the mother lode of lunacy.

It goes without saying that all calculations have to be ultimately converted to your own currency. It's so bloody obvious that it doesn't have to said (though the obvious does escape the oblivious at times).

Btw, you're welcome for the help.
  • #7
  • Feb 27, 2007 1:23pm Feb 27, 2007 1:23pm
Quoting Andrew's PF
There's nothing misleading about it. The value of all currencies in forex are calcuated using the USD. And do you know why? Standardization, that's why. A trader in Singapore buying from a trader in NY has to be on the same page to avoid any mistakes. Every forex trader (well, the ones who know what they're doing) can quickly calculate the pip value of any currency because it's the same formula for everyone.
I think we are probably talking about different things. Which stems from my inability to ask the question right because I did not know the answer

What I actually wanted to know was how to calculate the PIP value for risk management in my account currency. Now I didn't ask that, because I didn't understand what I was trying to ask.

You have cleared it up for me by making me understand the PIP value better I appreciate that thanks.
  • #8
  • Feb 27, 2007 1:42pm Feb 27, 2007 1:42pm
Quoting womble
I think we are probably talking about different things. Which stems from my inability to ask the question right because I did not know the answer

What I actually wanted to know was how to calculate the PIP value for risk management in my account currency. Now I didn't ask that, because I didn't understand what I was trying to ask.

You have cleared it up for me by making me understand the PIP value better I appreciate that thanks.
Send me an email and I'll send you an Excel spreadsheet that I use. I don't trade crosses, just the majors, but you'll be able to see the calculations that are used. It'll be a simple matter of altering the calculations for the crosses once you understand how it's done. Btw, I use Percent Risk which is a very solid MM method and that's how the sheets are set up. With a bit of tweaking, you can set it up for NZD.
  • #9
  • Feb 27, 2007 7:51pm Feb 27, 2007 7:51pm
Quote
If my money was in NZD$ (for which I have failed to find a broker)
You need to look harder....... Off the top of my head,(not saying they are good/bad) but I know of:
CMS Forex
IFX Markets Inc
Saxo Bank

It may also be worth asking a specific broker if they would do it - even if they dont advertise the fact. Depending on your a/c size/volume etc, I know this approach can work.
  • #10
  • Feb 15, 2018 12:44pm Feb 15, 2018 12:44pm
Hi all,

Ive done up a spreadsheet that calculates pip values for 30 odd pairs using open office.
It is based on AUD deposit currency though.
Im no spreadsheeter by any means but i had a go using info from alpari here. https://alpari.com/en/faq/trading_te..._value_of_pip/
Not finished yet but it works
you need ur mt4 open to get the data to update the sheet
you will also need to adjust the formula in column E to your own deposit currency
stop loss is worked out from the i j k columns
when u download the xls file u will need to save it as something else when u want to change anything as it is a read only file
might help some of you out
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File Type: xls pipsperlot.xls   26 KB | 764 downloads
  • #11
  • Last Post: Jul 4, 2019 5:33am Jul 4, 2019 5:33am
Quoting AlanT58
Hi all, Ive done up a spreadsheet that calculates pip values for 30 odd pairs using open office. It is based on AUD deposit currency though. Im no spreadsheeter by any means but i had a go using info from alpari here. https://alpari.com/en/faq/trading_te..._value_of_pip/ Not finished yet but it works you need ur mt4 open to get the data to update the sheet you will also need to adjust the formula in column E to your own deposit currency stop loss is worked out from the...
Dear buddy I have problem with gettin information from your MT4. I use Alpari for trading and your file cannot extract information from this broker. Can you guid me to solve this problem? please share your DDE.exe.
THX
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