Learn to calculate the Pip and Tick value.
What is the Pip and the Tick?
Both terms are similar and one or the other is usually used depending on the financial asset.
However, in the case brokers that offer currency pairs with 5 decimal places - 3 decimal places for JPY pairs -, as is the case of Darwinex, 1 pip is equivalent to 10 ticks.
Pip is a measurement of trading movement in the forex market. It is defined as the smallest movement which a currency can have - for pairs with 4 decimal places.
On the EUR/USD pair, for example, a movement of 1.00010 to 1.00020 would correspond to a pip, whereas on the USD/JPY, a pip would be equivalent to a movement of 120.010 to 120.020.
We use the term tick for the minimum movement in the quote price for the rest of the markets, such as futures or CFDs.
However, provided that the currency pair has 5 decimal places, as is the case at Darwinex, the tick will be the smallest movement a currency can have.
On the EUR/USD pair, for example, a movement of 1.00001 to 1.00002 would correspond to a pip, whereas on the USD/JPY, a pip would be equivalent to a movement of 120.001 to 120.002.
In order to calculate the pip value you need to know the entry and exit price at which the trade is carried out, as well as its volume.
Although there are different ways of calculating the value of a pip, the easiest and quickest way is remembering that 1 pip is always equivalent to:
- 0.01 lot => 0.1 monetary units of the listed currency
- 0.1 lot => 1 monetary units of the listed currency
- 1 lot => 10 monetary units of the listed currency
- 10 lots => 100 monetary units of the listed currency
For example, a pip on a trade of 0.1 lot would be equivalent to:
- EURCHF => 1 CHF
- USDCAD => 1 CAD
- EURUSD => 1 USD
We use quote currency to refer to the second currency in the pair for the trade whcih we are carrying out.
Do not worry if the quote currency is different to your account's base currency, because the system carries out the conversion automatically.
You can find an example below in the section ''Pip and Tick calculations''.
Calculating the Pip or Tick value at Darwinex
An alternative to calculating the Pip or Tick value of a financial asset would be through this link, where you will access a table with all the assets which we currently offer at Darwinex (forex, indices and commodities).
In the table of assets and spreads you will be able to obtain the Pip value of all of the currency pairs available at Darwinex for 1 lot.
Indices and commodities
On these tables you will see the value in the case of negociating 1 lot or 1 contract. For bigger or smaller sizes, you should calculate the proportional value, dividing or multiplying.
Pip and Tick calculations
Once you know the Pip or Tick value of the financial asset, it will be very easy to calculate the result of a trade.
Imagine that you buy 1 lot of EURUSD at 1.20000, you place a Take Profit at 1.21000 and a Stop Loss at 1.19500. Remember that 1 lot is equivalent to 100.000 of the base currency.
Due to the fact that at Darwinex we offer the quote price of the EUR/USD with 5 decimal places, the size of 1 pip will be 0.00010, or 10 ticks.
In order to work out its value, you will have to do the following calculations:
- Multiply 100.000 x 0,00010 = 10
- The previous result is expressed in the quote currency, therefore, in this case a pip is worth 10 USD. For each movement of a pip in your favour on the EUR/USD, the trade profit will increase 10 USD, and for each movement of a pip against you on the EUR/USD, the profit will decrease by 10 USD.
- If the trade closes, for example, with 10 positive pips, you will have obtained 100 USD in profit.
- If you account is based in USD, you will not have to do anything else. However, do not worry if your account is in another currency, because the MetaTrader platform will automatically carry out the conversion. For example, if your account's base currency is in euros and the spot price on the EUR/USD at that moment is 1.20000: $10 = 8,33€ (10/1,20000).
How much is the potential profit and/or loss of a trade, if the Take Profit or Stop Loss is executed, without taking into account the commissions?
The Take Profit is executed: 1.20000-1.210000 = 100 pips in profit
The Pip value for a lot on the EURUSD is always 10 USD.
100 pips x 10 USD = 1000 USD profit
The Stop Loss is executed: 1.20000 - 1.19500 = - 50 pips of loss
- 50 pips x 10 USD = -500 USD of potential loss
Do you want to learn more?
If you want to learn more about the Pip or tick value, together with a case study, we recommend watching the following videotutorial.