The formula and how it works
Pip value = lots × contract size × pip size
Only three inputs, but each changes between instruments:
| Instrument | Contract size | Pip size | Pip value per 1 lot |
|---|---|---|---|
| EUR/USD | 100,000 | 0.0001 | $10 |
| XAUUSD | 100 oz | 0.01 | $1 |
This is why forex intuition cannot be carried straight onto gold — see gold vs forex.
Why you need this number before every trade
Pip value is the bridge between analysis and actual risk: a "50-pip stop" without knowing pip value is a number with no financial meaning.
Example: a 50-pip stop on 0.10 lots of EUR/USD = 50 × $1 = $50 at risk. On a $1,000 account that is 5% — more than double the recommended cap. The fix is not tightening the stop but reducing the lot — see position sizing and risk management.