# Calculating a Pip's Value

Any Forex trader must know what pips are and how to determine the value of a certain currency's pip. We've gathered for you some useful information which will help you understand the nature of pips and how to figure out how much a certain pip is worth.

## Smallest Figure in Exchange Rates

Forex trading is all about buying one currency while using another to pay for it. The currency being bought is called the "target currency", and the currency used to pay with is called the "base currency". The exchange rate shows the price of each unit of the target currency in terms of the base currency (i.e. how much a trader must pay, using the base currency, for each unit of the target currency they buy).

If for instance, the exchange rate for the currency pair U.S Dollar/Euro is 1.5411, a trader will pay 1,541.1 U.S Dollars when buying 1000 Euros.

For all currencies, except the Japanese Yen (JPY), the figure showing pips is the smallest one in the exchange rate, the fourth digit after the decimal point. The figure showing pips of the Japanese Yen is the second after the decimal point.

## Knowing How Much a Certain Pip is Worth

Once you know which figure in a certain exchange rate is the one showing pips it becomes quite simple to calculate the value of a single pip.

In a case of the U.S Dollars/Euros Forex currency pair, if the exchange rate is 1.5411, each Euro costs 1.5411 U.S Dollars. The first digit in the exchange rate shows whole U.S Dollars, the second digit (which is the first after the decimal point) stands for tenths of U.S Dollars i.e. ten cent units. The third digit is cents, the fourth tenths of cents and the last digit, the fourth digit after the decimal point, the figure showing pips, stands for one hundredth of a cent (or one thousandth of a U.S Dollar). Therefore, a pip in this case, is worth one hundredth of a cent.

Although it is highly advisable that anyone engaging in Forex trading knows enough about pips, nowadays it is no longer necessary for traders to figure out the value of a certain pip by themselves. Modern Forex trading platforms, the one we offer naturally among them, feature a Forex pip calculator which makes it very easy to tell how much the pip of any currency is worth.