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:

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

*THE EXAMPLES BELOW ARE HYPOTHETICAL AND ARE FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY

Calculating Pip Value.  Pip stands for "price interest 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 for 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 for 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 negative 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

Calculating Pip Value.  Pip stands for "price interest 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 for 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 for 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 positive 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

Calculating Cross Rate Pip Value.  Pip stands for "price interest 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 for 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 for 100,000 EUR/GBP contract initially sold at .6760 then bought (closed) at .6750:

          .6760 (selling price)  -  .6750 (purchase price)  =  .0010 positive 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