Formula for computing pip values and position values for direct rates, cross rates, and indirect rates in the forex markets

Direct Rates: GBP/USD, EUR/USD, AUD/USD
Indirect Rates: USD/CAD, (USD/JPY), USD/CHF
Cross Rates: EUR/SEK, GBP/EUR, AUD/NZD

Calculating Direct Rate Pip Value:
Formula: Pip size=lot size x tick size
Example for 100,000 EUR/USD

1 PIP = 100,000 (lot size) x .0001 (tick size) = $10.00 USD

Calculating Indirect Rate Pip Value:
Formula: Pip size = (lot size x tick size)/current rate
Example: for 100,000 USD/CAD

1 Pip = 100,000 (lot size) x .0001 (tick size)/1.2400 = $8.0645


Calculating Cross Rate Pip Value:
Formula: Pip Size = (lot size) x (tick size) x (base quote)/current quote
Example: for 100,000 EUR/GBP trading at .6750 and EUR/USD trading at 1.1840

1 Pip = [100,000 EUR/GBP (lot size) x .0001 (tick size) x 1.1840 (EUR/USD quote)] / .6750 (EUR/GBP quote) = $17.54 USD


That is the most difficult part. With the above information you can determine your risk and how much you can lose/gain.

Example: EUR/GBP is trading at .6750 and you want to buy 100000 EUR/GBP now and place your sell order at .6800. If the cross rate rises to your sell stop it be a .0050 difference which is equall to 50 pips. Remember 1 pip equals $17.54, therefore, if the EUR/GBP rises and you sell 50 pips higher you will make $877.00 USD.

So, as you can see as long as you know what you are doing forex trading doesn't have to be any riskier than trading stocks. In fact it can help diversify a portfolio since many currencies will have a low correlation to the stock market.