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Example 2: Going Short on USD/JPY

We may expand this example to all those pairs that USD is their base currency (for example to USD/CAD or USD/CHF). The calculations are a bit more complicated in this case.

Let's assume that you sell USD/JPY at 105.81 and then close the trade at 105.80. Here you have made 1 pips in profit (i.e. 10581-10580=1). Since this is a short trade we made money when the price dropped below the open price.

At first we sold 100,000 USD in exchange of JPY. Since the price was 105.81 we then gained 10,581,000 Japanese Yen (i.e. 100,000x105.81). At the time that we close the trade the priced had dropped to 105.80 so this simply means are Yen was then worth 100,009.45 USD (i.e. 10,581,000/105.80). This means the we sold 100,000 USD but we gained 100,009.45. This means that our profit in this trade is $9.45. As you can see here 1 pip is less than $10 (for a standard lot) and depends on the price at the time of entering and closing the trade. Here we can say that 1 pip in terms of Dollar can be calculated from the following forumla:

Number of Lots x Lot Units x (Price Difference/Close Price)

In the above example 1 pip was 1 x 100,000 x [(105.81-105.80)/105.80) = 100,000 x (0.01/105.80) = $9.45

All this means that pip dollar value in such pairs depends on the currency price and can vary from time to time. If we decide to come up with a formula for profit or loss we can use the following for those pairs that their base currency is USD.

Profit/Loss in USD = Number of Lots x Lot Units x (Price Difference/Close Price) x Pips gained or lost