# The ‘value per pip’ explained

The ‘value per pip’ is the amount of money in your portfolio that you’re willing to risk or gain for every one pip that moves in or against your favour.

If you choose a ‘value per pip’ of R5 and the market moves 20 pips away from your entry price, this means you’ll incur a R100 loss (R5 risk per pip X 20 pips movement).

Similarly, if the market moves in your favour of 20 pips, then you’ll be up with a gain of R100.

However, we all have different portfolio values and so the ‘value per pip’ will be different for each of us.

That’s why you’ll need a checklist to follow in order to find your ‘value per pip’.

# Here are the specifics for the trade

Portfolio value: R50,000
2% Max risk per Forex trade:
R1,000

Currency pair: AUD/USD

Entry price: 0.7010
Stop loss price: 0.6970

Next, you’ll need to follow three steps:

# Step 3: Find your ‘value per pip’

You now have all of the variables you’ll need, to calculate the ‘value per pip’ with your Forex trade.

Here’s the calculation.

‘Value per pip’
= (R1,000 ÷ 40 pips)
= R25

This means, on your trading platform you’ll type in, R25 for where it says ‘Rands risked per pip’, ‘Pip value’ or ‘Volume’, place your entry price at 0.7010 and your stop loss price at 0.6970 in order to risk R1,000 of your portfolio.

# How to find the ‘Value Per Pip’ with the YEN

Portfolio size: R50,000
Max risk percentage per trade: 2%

Currency pair: USD/JPY

Entry price: 110.50
Stop loss: 110.00

# Step 1: Calculate the portfolio risk per trade

Here’s the calculation.

= (Portfolio size X Max percentage risk per trade)
= (R50,000 X 2%)
= R1,000

# Step 2: Calculate pips risked in trade

As each pip movement is two decimal places on each currency, you’ll multiply the difference between the entry and your stop loss price by 100.

Here’s the calculation:

= (EntryStop loss) X 100
= (110.50110.00) X 100
=  50 pips

This means, you are prepared for the market to move 50 pips away from your entry before you’ll be taken out of your trade for a loss.

# Step 3: Find your ‘value per pip’

‘Value per pip’
= (R1,000 ÷ 50 pips)
= R20

This means, on your trading platform you’ll type in, R20 for where it says ‘Rands risked per pip’, ‘Pip value’ or ‘Volume’, place your entry price at 110.50 and your stop loss price at 110.00 in order to risk R1,000 of your portfolio.

You have the three step checklist to find your ‘value per pip’ for every Forex currency

# Final Words

You have the three step checklist to find your ‘value per pip’ for every Forex currency.

Do you have any Forex questions? Ask by clicking here.