What a pip is worth in money
What you learn in 3 minutesA pip is the smallest standard step in a price quote. On AUD/USD, one pip is a move of 0.0001, so a quote of 0.6640 becomes 0.6641 after one pip. The money value of that pip is not fixed: it depends on the lot size and on the pair being traded, so the same twenty-pip move pays a different amount on different trades.
Twenty pips on 0.10 lots of AUD/USD
| Step | Amount | Note |
|---|---|---|
| Lot size | 0.10 lots | one tenth of a standard lot |
| Units of base currency | 10,000 AUD | 0.10 x 100,000 units in a standard lot |
| Pip size on AUD/USD | 0.0001 | the fourth decimal place is the standard pip step |
| Value of one pip in USD | US$1.00 | 10,000 x 0.0001 = 1.00 unit of the quote currency |
| AUD/USD rate used | 0.6640 | the example rate; the live rate will differ |
| Value of one pip in A$ | A$1.51 | 1.00 / 0.6640 = 1.5060, rounded to two decimals |
| Value of twenty pips in A$ | A$30.12 | 20 x 1.5060 = 30.12 |
The broker may round the pip value, quote a slightly different rate at the moment of execution, and charge a spread or commission on top. On AUD/USD the pip value in A$ moves whenever the AUD/USD rate moves.
The mistake people make here
The common mistake is to treat a pip as a fixed amount of money. It is not. One pip on 0.10 lots of AUD/USD is about A$1.51 at a rate of 0.6640, but one pip on a full standard lot is ten times that, and one pip on a pair quoted in a different currency is converted at a different rate. Before placing a trade, work out the pip value for the exact lot size and the exact pair, then multiply by the number of pips in the planned stop. If that number is larger than the amount the account can lose without affecting other plans, the trade is too large.Check yourself
A trade is 0.05 lots of AUD/USD at 0.6640. What is one pip worth in A$?
0.05 lots is 5,000 units. One pip is 5,000 x 0.0001 = US$0.50. At 0.6640, that is 0.50 / 0.6640 = A$0.75, rounded to two decimals.
The same 0.05-lot trade moves 30 pips in the trader's favour. What is the gross result in A$?
One pip is A$0.75, so 30 pips is 30 x 0.75 = A$22.50 before any spread, commission or rounding.
In Australia
- Regulator
- ASIC regulates retail forex and CFD providers that offer services to clients in Australia.
- Account currency
- An Australian resident can usually open an account funded in AUD, but the base currency of the account is set by the broker.
- Funding methods
- PayID, BPAY and cards are common ways to move money into a trading account; the exact methods vary between brokers.
- Example instrument
- AUD/USD is quoted with four decimal places, so one pip is 0.0001; around 0.6640 in this lesson.
- Pip value in A$
- On one standard lot of AUD/USD, one pip is 10 units of the quote currency, converted at the current rate; at 0.6640 that is about A$15.06.