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Every currency pair has a corresponding value and hence a quote. For example, a GBP/USD quote could be 1.5776. This means that the exchange rate for every GBP is USD 1.5776. In other words, it would cost the trader USD 1.5776 to buy a single GBP. A pip is the smallest price change that a given exchange rate can make.

In our example a move from 1.5776 to 1.5777 would indicate a 1 pip increase. Since most major currency pairs (but not all, example of an important exception is the USD/JPY pair) are priced to four decimal places (.0000), the smallest change is obviously that of the last decimal point, or one basis point.

The value of a pip depends on the amount that is being bought or sold of that specific currency. Let’s use a 10,000 unit purchase for our example.

Formula: (one pip with proper decimal placement/currency exchange rate) X (amount being purchased) = pip value

Example 1: GBP/USD Rate is 1.5776
0.0001/1.5776 X GBP 10,000 = 0.6339 GBP. Since we want the value in USD we multiply the GBP pip value by the exchange rate:
0.6339 X 1.5776 = USD 1.00. In other words, in a USD 10,000
purchase of GBP’s the pip value is one dollar.

Example 2: EUR/USD Rate is 1.2000
0.0001/1.2000 X EUR 10,000 = 0.8333 EUR. Since we want the value in USD we multiply the EUR pip value by the exchange rate:
0.8333 X 1.2000 = USD 1.00. In other words, in a USD 10,000
purchase of EUR’s the pip value is one dollar.

We can see that when the USD is the weaker currency between the two, a pip value will be one USD. However, this is not the case if the USD is the stronger currency. Let's look at some examples:

Example 1: USD/JPY Rate is 113.20
.01/113.20 X USD 10,000 = USD 0.8834. Since the USD is the base currency we do not have to go on and multiply the pip value by the exchange rate (like in the above examples).

Example 2: USD/CHF Rate is 1.5285
.0001/1.5285 X USD 10,000 = USD 0.6542. Again, since the USD is the base currency we do not have to go on and multiply the pip value by the exchange rate (like in the above examples).

Don’t worry! I just wanted you to know the correct way to calculate pip value but in reality most trading platforms will tell you automatically the correct pip value of the currency pair you are about to trade.