The term “pip” in forex trading stands for “percentage in point” or “price interest point”. It is a fundamental concept used to measure the movement in exchange rates between two currencies. Understanding what a pip is, how it is calculated, and how it affects profit and risk is essential for anyone entering the forex market.

Key Takeaways

• A pip is the smallest standard unit of price movement in forex pairs.
• For most currency pairs, 1 pip = 0.0001; for JPY pairs, 1 pip = 0.01.
• Pips are crucial for measuring risk, reward, and price fluctuations.
• The value of a pip depends on the lot size and the currency being traded.
• Pips form the basis of all profit and loss calculations in forex trading.

What Is a Pip in Forex?

A pip represents a one-digit move in the fourth decimal place of most currency pairs. For example, if EUR/USD moves from 1.1050 to 1.1051, that’s a movement of 1 pip. However, in yen pairs like USD/JPY, it moves in the second decimal place — from 145.25 to 145.26 is a 1 pip change.

How Pip Value Is Calculated

The value of one pip is determined by:

• Currency pair
• Lot size (standard, mini, micro)
• Account currency

Standard Pip Calculation Formula

For most pairs:
Pip Value = (0.0001 × Lot Size) / Exchange Rate

For JPY pairs:
Pip Value = (0.01 × Lot Size) / Exchange Rate

Examples

• EUR/USD, Standard Lot (100,000 units):
  Pip Value = (0.0001 × 100,000) ÷ 1.1000 = $9.09 per pip
• USD/JPY, Mini Lot (10,000 units):
  Pip Value = (0.01 × 10,000) ÷ 145.00 = ¥6.90 per pip

Lot Sizes and Corresponding Pip Values

Lot Size	Units Traded	Approx. Pip Value (EUR/USD)
Standard Lot	100,000	$10
Mini Lot	10,000	$1
Micro Lot	1,000	$0.10
Nano Lot	100	$0.01

Pips in Risk Management and Strategy

Pips are used to define:

• Stop-loss and take-profit levels
• Risk-to-reward ratios
• Market volatility
• Trade outcomes

For instance, a trader may set a stop-loss at 50 pips and a take-profit at 100 pips, ensuring a 1:2 risk-reward setup.

Pipettes Explained

A pipette is a fractional pip, representing 1/10 of a pip. Brokers that use 5-digit pricing for EUR/USD or 3-digit pricing for JPY pairs include pipettes for more accurate quotes.

• 1 pip = 0.0001
• 1 pipette = 0.00001

Case Study: Pip Precision in Live Trading

Sarah, a UK-based trader, opens a long trade on GBP/USD at 1.2500 and sets a stop-loss at 1.2475. Her risk is 25 pips. Using a mini lot (10,000 units), her potential loss is 25 × $1 = $25. Her precision with pip calculation allows her to control her position size and maintain consistency.

Fundamental vs Technical Use of Pips

Aspect	Fundamental Trading	Technical Trading
Role of Pips	Measure reaction to economic releases	Define chart levels, stop-loss, targets
Strategy Type	Event-driven or macro-based entries	Indicator-based and pattern-based setups

Frequently Asked Questions

What does pip mean in forex?
A pip is a unit of measurement that shows the change in value between two currencies.

How many pips is good profit?
That depends on your strategy. Some traders aim for 20 pips per trade, others go for 100 or more.

Do pips determine profit or loss?
Yes. Multiply the number of pips gained or lost by the pip value to find your P&L.

What’s the difference between a pip and a pipette?
A pipette is 1/10th of a pip, allowing for more precise pricing.

Are pip values the same across all pairs?
No. They differ based on lot size, currency pair, and the base/quote relationship.

Conclusion

Pips are the foundation of all forex trading calculations — from measuring price movement to managing risk and determining profit. Without understanding pips, no trader can execute a sound strategy. Whether you’re scalping for a few pips or swing trading for hundreds, mastering pip value is non-negotiable. To deepen your knowledge of pips and position sizing, enrol in our CPD Accredited Trading Courses and start trading with precision.