In forex trading, the term “pip” stands for “percentage in point” or “price interest point”. It is the standard unit used to measure the change in value between two currencies in a currency pair. Understanding how pips work is essential for calculating profits and losses, managing risk, and setting effective entry and exit points.

This article explores what a pip is, how it’s calculated, and why it matters to all levels of forex traders.

Key Takeaways

• A pip is the smallest price movement in most currency pairs, usually 0.0001.
• In Japanese yen pairs, a pip is 0.01.
• Pips are used to calculate profits, losses, and risk in forex trading.
• The monetary value of a pip varies depending on the lot size and currency pair.
• Mastery of pip calculations is essential for risk management and trade execution.

Definition of a Pip in Forex

A pip is typically the fourth decimal place in most forex pairs. For instance, in EUR/USD, if the price moves from 1.1000 to 1.1005, that’s a 5-pip movement. In JPY pairs like USD/JPY, a pip is the second decimal — so 145.00 to 145.10 is a movement of 10 pips.

How to Calculate the Value of a Pip

The pip value changes depending on:

• Currency pair
• Trade size (lot)
• Your account currency

For most currency pairs:

Pip Value = (0.0001 × Trade Size) / Exchange Rate

For USD/JPY or other yen pairs:

Pip Value = (0.01 × Trade Size) / Exchange Rate

Example: EUR/USD (Standard Lot)

• Trade Size = 100,000 (1 standard lot)
• Exchange Rate = 1.1000
• Pip Value = (0.0001 × 100,000) ÷ 1.1000 = $9.09 per pip

Example: USD/JPY (Mini Lot)

• Trade Size = 10,000 (1 mini lot)
• Exchange Rate = 145.00
• Pip Value = (0.01 × 10,000) ÷ 145 = ¥6.90 per pip

Lot Size and Pip Value Table

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

Importance of Pips in Forex Trading

• Profit/Loss Calculation: Profit is calculated by multiplying the number of pips gained or lost by the pip value.
• Risk Management: Stop-loss and take-profit levels are set in pips.
• Strategy Development: Most trading systems use pips to define entry, exit, and target zones.

Pip vs Pipette

A pipette is 1/10 of a pip and is used to provide more precise pricing. While a pip is 0.0001, a pipette is 0.00001.

Fundamental vs Technical Use of Pips

Aspect	Fundamental Trading	Technical Trading
Pip Relevance	Measures market reaction to news events	Defines price targets, stops, and trends
Typical Use	Used after data releases	Used for chart pattern projections

Case Study: Pip-Based Risk Control

Ryan, a forex trader in London, places a EUR/USD buy trade at 1.1000 with a 50-pip stop-loss and a 100-pip take-profit. Using a mini lot, he risks $50 to potentially gain $100 — a 1:2 risk/reward ratio. His pip knowledge ensures he sizes the trade correctly and maintains consistent risk control.

Frequently Asked Questions

What is a pip in forex trading?
A pip is a unit of movement in currency price — usually 0.0001 or 0.01 for yen pairs.

How many pips is a good trade?
It depends on the strategy. A good trade has a favourable risk-reward ratio, such as 1:2 or better.

What’s the difference between a pip and a pipette?
A pipette is 1/10th of a pip and provides more decimal accuracy in quotes.

Do all brokers show pipettes?
No, some brokers quote only to 4 or 2 decimal places, while others use 5 or 3 for precision.

Why are pips important in forex?
They allow you to measure price changes, calculate risk, and determine profit or loss.

Conclusion

Understanding what a pip is in forex trading is fundamental to becoming a successful trader. From managing risk to calculating trade size and profits, pips are the universal metric used across all trading strategies. For a structured learning path on forex concepts including pips, pipettes, and position sizing, enrol in one of our CPD Accredited Trading Courses and start building your trading expertise.