Majors, Crosses and Pip Value
How many dollars is a pip on USD/JPY worth? Where does the EUR/JPY rate come from? Learn to convert any pair's pip value into dollars.
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
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Text version · Forex Basics, lesson 8: “Majors, Crosses and Pip Value”
How many dollars is a pip on USD/JPY worth? Where does the EUR/JPY rate come from? Learn to convert any pair's pip value into dollars.
Major and cross pairs
Pairs with the dollar, like EUR/USD and USD/JPY, are called a major pair; one without it, like EUR/JPY, is a cross pair, whose rate is derived from two majors: the cross rate.
Pip value is first worked out in the quote currency
1 lot = 100,000 units of base currency, and the P&L per pip = 100,000 × 1 pip, in the quote currency. So 1 lot of USD/JPY is worth ¥1,000 per pip, not $10.
Then convert to your account currency
A dollar account has to convert it into dollars: ¥1,000 ÷ 150 ≈ $6.67. When the quote currency is the dollar (as in EUR/USD), no conversion is needed: 1 lot is exactly $10 per pip. That's the pip value.
Key takeaways
- Pairs that include the US dollar are majors; pairs without it are crosses. A cross rate comes from multiplying or dividing two dollar pairs.
- Pip value is first worked out in the quote currency: 1 lot = 100,000 × 1 pip. For example, USD/JPY is ¥1,000 per pip.
- When the quote currency is the dollar, 1 lot is $10 per pip. Otherwise, convert at the current rate: at USD/JPY 150 it's about $6.67.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Pick EUR/USD at 1.00 lots: what's "Per pip (USD)"? Then compare with GBP/USD.
- Pick USD/JPY: each pip starts as ¥1,000. About how much is that in dollars? Drag USD/JPY to 120 and 180 and look again.
- Pick EUR/JPY: in the derivation bar, what does EUR/USD 1.0850 × USD/JPY 150.00 equal?
- Look at the comparison bars at the bottom: at 1 lot, which pair is worth the most per pip? Why?
Quiz and explanations
- 1. USD/JPY = 125 and you trade 1 lot. Roughly how many dollars is each pip worth?
- Answer: $8.Each pip is ¥1,000 (100,000 × 0.01). In dollars: 1,000 ÷ 125 = $8.
- 2. EUR/USD = 1.10 and USD/JPY = 140. Roughly what's EUR/JPY?
- Answer: 154.Cross rate: 1.10 × 140 = 154.
- 3. Which of these is a cross pair?
- Answer: EUR/GBP.Neither side of EUR/GBP is the dollar, so it's a cross.
Terms in this lesson
- cross rate (Cross Rate): A third exchange rate worked out from two others, such as EUR/JPY = EUR/USD × USD/JPY.
- cross pair (Cross Pair): A currency pair without the US dollar, such as EUR/JPY or EUR/GBP, whose rate is derived from two dollar pairs.
- major pair (Major Pair): A main currency pair that includes the US dollar, such as EUR/USD or USD/JPY, with the most trading and usually the tightest spreads.
- lot (Lot): The unit of trade size in forex: 1 standard lot = 100,000 units of the base currency; 0.1 is a mini lot and 0.01 a micro lot.
- notional value (Notional): The total value of the asset a position controls; for example, 1 lot of EUR/USD ≈ $108,500.
- currency pair (Currency Pair): Such as EUR/USD: how much of the quote currency (USD) one unit of the base currency (EUR) is worth.
- pip value (Pip Value): How much your profit or loss changes when price moves 1 pip, set by your lot size.
- quote currency (Quote Currency): The currency after the slash in a pair, such as USD in EUR/USD, used to price the base currency.