What a pip is worth in money
Compare two trades on the same pair
Two people open the same trade on EUR/USD at 1.0850. Each plans a stop twenty pips away. The first trades 0.10 lots. The second trades 0.50 lots. The price move is identical. The money at risk is not.
On 0.10 lots, one pip is worth USD 1.00. Twenty pips is USD 20.00. At KSh 130.00 per USD, that is KSh 2,600.00. On 0.50 lots, one pip is worth USD 5.00. Twenty pips is USD 100.00. At the same rate, that is KSh 13,000.00. Same chart, same stop, five times the loss.
The comparison shows why lot size is the first number to write down. It sets the shilling value of one pip before any price move happens. The pair and the conversion rate then decide how many shillings that dollar figure becomes. Change either one and the answer changes.
Work out the pip value from the lot size
A standard lot on EUR/USD is 100,000 units. One pip is 0.0001 of a unit. Multiply 100,000 by 0.0001 to get USD 10.00 per pip. A mini lot is 10,000 units, so one pip is USD 1.00. A micro lot is 1,000 units, so one pip is USD 0.10. These figures are for pairs where the quote currency is the US dollar.
For a pair quoted in another currency, the pip value is first in that quote currency. To express it in shillings, you need the conversion rate between that currency and KES. That rate varies between brokers and changes through the day. Use the rate your broker applies to your account, not a rate from a news site.
The broker may add a spread, commission or swap on top of the raw pip value. The spread is the gap between the buy price and the sell price, and it is paid on entry. Commission is a separate charge per trade. Swap is a daily charge for holding a position overnight. Check the contract specifications for the exact figures, because they differ between brokers.
Turn pips into a stop-loss figure in shillings
A stop-loss is a price level where your trade closes to limit a loss. To plan one, decide the number of pips you are willing to lose. Then multiply that number by the shilling value of one pip. The result is the amount that leaves your account if the stop is hit.
Suppose you trade 0.20 lots of EUR/USD and set a stop fifty pips away. One pip is USD 2.00. Fifty pips is USD 100.00. At KSh 129.00 per USD, that is KSh 12,900.00. If your account holds KSh 50,000.00, the stop risks about a quarter of it on one trade. That is a large share for a single position.
Many traders set a limit on the share of the account risked per trade, often a small percentage. The pip value lets you check whether a planned stop fits that limit before you enter. If it does not, reduce the lot size or widen the stop only if the limit allows. The arithmetic is the same each time: pips multiplied by pip value in shillings.
One pip on 0.10 lots of EUR/USD
| Step | Amount | Note |
|---|---|---|
| Lot size | 0.10 lots | This is one tenth of a standard lot. A standard lot is 100,000 units of the base currency. |
| Units of EUR controlled | 10,000 | 0.10 multiplied by 100,000 units. |
| One pip in quote currency (USD) | USD 1.00 | 10,000 units multiplied by 0.0001, which is one pip. |
| GBP/KES reference rate used here | KSh 129.00 per USD | This rate varies between brokers and changes daily. It is used only to show the method. |
| One pip in shillings | KSh 129.00 | USD 1.00 multiplied by KSh 129.00 per USD. |
| Twenty pips in shillings | KSh 2,580.00 | KSh 129.00 multiplied by 20 pips. |
The broker may round the conversion rate, charge a spread, commission or swap on top, and the rate used for conversion can differ from the rate shown on a news site. Check the contract specifications for the exact pip value and any charges.
Doing it once, step by step
You will calculate the shilling value of one pip and then the money at risk on a planned stop. Do the steps in order, writing each number down before moving to the next.
- 01
Write down the lot size
Find the lot size you plan to trade, such as 0.10, 0.20 or 0.50. This is the first of the three numbers you need. It sets the pip value before any conversion.
- 02
Find the pip size for the pair
For EUR/USD, one pip is 0.0001. For pairs quoted to two decimal places, one pip is 0.01. Check the contract specifications if you are unsure. The pip size is the second number.
- 03
Get the conversion rate to shillings
Ask your broker for the rate used to convert the quote currency to KES. This rate varies between brokers and changes during the day. Use the broker's rate, not one from a news site. This is the third number.
- 04
Multiply to get one pip in shillings
For 0.10 lots of EUR/USD, one pip is USD 1.00. Multiply USD 1.00 by the conversion rate, for example KSh 130.00, to get KSh 130.00 per pip. Write this figure down.
- 05
Multiply by the number of pips in the stop
If your stop is twenty pips away, multiply KSh 130.00 by 20. The result is KSh 2,600.00. This is the amount at risk if the stop is hit, before any spread, commission or swap.
- 06
Compare the risk with your account balance
Divide the shilling risk by your account balance to see the share at risk. If it is larger than your limit, reduce the lot size and recalculate. Repeat until the figure fits your plan.
The mistake most people make here
The common mistake is to think a pip has one fixed value in shillings. It does not. The value changes with lot size and with the pair, because the conversion rate between the quote currency and the shilling is not fixed. Instead of guessing, write down the lot size, the pip size for that pair, and the current conversion rate before placing a trade. Then multiply the three numbers to get the shilling value of one pip, and multiply again by the number of pips in the planned stop.Check yourself
On 0.10 lots of EUR/USD, one pip is USD 1.00. If the conversion rate is KSh 130.00 per USD, what is twenty pips worth in shillings?
One pip is KSh 130.00. Twenty pips is KSh 130.00 multiplied by 20, which equals KSh 2,600.00.
On 0.20 lots of EUR/USD, one pip is USD 2.00. At KSh 129.00 per USD, what is a fifty-pip move worth in shillings?
One pip is USD 2.00 multiplied by KSh 129.00, which equals KSh 258.00. Fifty pips is KSh 258.00 multiplied by 50, which equals KSh 12,900.00.
Questions that come up next
Why does the same twenty-pip move give different shilling amounts?
The shilling amount depends on two separate numbers. The first is the lot size, which sets the value of one pip in the quote currency. The second is the conversion rate between that quote currency and the shilling. Change either number and the final shilling amount changes. The price move itself is only one part of the calculation.
Which conversion rate should I use to work out pip value in shillings?
Use the rate your broker applies to your account. That rate can differ from the rate shown on a news site. It can also change during the day. Check the contract specifications or the platform for the rate actually used on your trades. If you use a news rate, your figure may be wrong.
Does a smaller lot size always mean less risk?
A smaller lot size reduces the shilling value of one pip. But risk also depends on how many pips your stop is away. A small lot with a very wide stop can risk more than a larger lot with a tight stop. Work out both numbers before you trade. The lot size alone does not tell you the risk.
What costs are added on top of the raw pip value?
The broker may add a spread, commission or swap. The spread is the gap between the buy price and the sell price. Commission is a separate charge per trade. Swap is a daily charge for holding a position overnight. These charges differ between brokers, so check the contract specifications for the exact figures.
How do I turn a stop-loss into a shilling figure?
Decide how many pips away your stop will be. Multiply that number by the shilling value of one pip. The result is the amount that leaves your account if the stop is hit. Compare that amount with your account balance. If it is a large share, the trade may be too big for the account.
Can I use the same pip value for every pair?
No. The pip value depends on the pair being traded. For pairs quoted in US dollars, the pip value in dollars is fixed by the lot size. For pairs quoted in another currency, the pip value is first in that quote currency. You then need the conversion rate between that currency and the shilling. That rate varies.
In Kenya
- Regulator
- The Capital Markets Authority (CMA) regulates investment firms in Kenya.
- Money
- The local currency is the Kenyan shilling, written KSh or KES.
- Funding methods
- Common ways to move money to a trading account include M-Pesa and bank transfer.
- Conversion
- A trade in EUR/USD is priced in US dollars. To see the value in shillings, the dollar figure is converted at a rate that varies between providers.
- Costs
- Spreads, commissions and conversion charges vary between brokers and are not set by the CMA.
The words used on this page
- pip
- The smallest standard step in a price. For EUR/USD it is usually the fourth decimal place. The money value of one pip depends on the lot size and the pair.
- lot size
- The number of units in a trade. A standard lot is 100,000 units, a mini lot is 10,000 units, and a micro lot is 1,000 units. Lot size sets the value of one pip in the quote currency.
- conversion rate
- The rate used to change one currency into another. To express a pip value in shillings, you need the rate between the quote currency and KES. This rate varies between brokers and changes through the day.
- stop-loss
- A price level where your trade closes to limit a loss. You set it a number of pips away from your entry. The shilling amount at risk is that number of pips multiplied by the pip value.
- spread
- The gap between the buy price and the sell price. It is paid on entry. The spread is one of the charges that can be added on top of the raw pip value.
- swap
- A daily charge for holding a position overnight. It is separate from the spread and commission. The amount differs between brokers, so check the contract specifications.
What to take away
- A pip is a price step, not a fixed shilling amount. Its value changes with lot size and with the pair.
- To get the shilling value of one pip, multiply the lot size, the pip size for that pair, and the conversion rate.
- To get the money at risk, multiply the pip value by the number of pips in your stop.
- The same twenty-pip move can risk five times more on 0.50 lots than on 0.10 lots.