A pip (short for “percentage in point”) is the smallest standardized price movement a currency pair can make in the forex market, typically equal to 0.0001 for most major pairs.
In standard forex trading, one pip equals 1/100th of 1% or 0.0001 for currency pairs quoted to four decimal places (like EUR/USD or GBP/USD). However, Japanese yen pairs (e.g., USD/JPY) are quoted to two decimal places, where one pip = 0.01.
Some brokers also use 5-digit pricing, introducing fractional pips or pipettes, which represent 0.1 pip moves for added precision.
Understanding pips is essential because they are used to measure price changes, set stoploss/take-profit levels, and calculate profits and losses across trades.
What You Will Learn from This Article:
- Understand what a PIP is and how it represents price movement in forex trading.
- Learn to calculate pip values across different currency pairs and lot sizes.
- Discover how PIPs influence profit, loss, stoploss, and position sizing.
- Avoid common beginner mistakes related to pip and pipette confusion.
- Compare PIPs to related metrics like points, ticks, spreads, and understand their role in cost and strategy.
Why PIPs Matter in Forex Trading
PIPs are foundational to understanding how profits and losses are calculated in forex trading. Since currency prices move in small increments, the pip provides a standardized unit to track those changes precisely.
1. Calculating Profit and Loss
Every pip movement affects your profit or loss based on your lot size. For example, in a standard lot, one pip movement typically equals $10. Without this measurement, evaluating trade outcomes would be inconsistent and inaccurate.
2. Position Sizing
Knowing pip value helps traders determine how much of a currency to trade. Position size calculators use pip distance between entry and stoploss to manage risk per trade, ensuring that traders don’t overexpose their capital.
3. Measuring Price Movement
Forex doesn’t move in large price chunks like stocks. Instead, movement is tracked in pips. For example, if EUR/USD moves from 1.0850 to 1.0865, that’s a 15-pip move—a significant swing depending on volume.
4. Setting Stoploss and Take-Profit Levels
Stoploss and take-profit orders are defined using pip distance. A trader might risk 20 pips to make 40, maintaining a risk-to-reward ratio of 1:2.
5. Comparing Trade Performance
Pip-based tracking allows traders to evaluate performance objectively, especially when trading different currency pairs with varying spreads and volatility.
How to Calculate PIPs (With Examples)
To calculate pips in forex, multiply the pip change by the trade size and the pip value of the currency pair. For most pairs, one pip equals 0.0001; for JPY pairs, it equals 0.01.
For USD-Based Pairs (e.g., EUR/USD, GBP/USD)
Example Calculation:
Let’s say EUR/USD moves from 1.1050 to 1.1060.
That’s a change of 10 pips (0.0010 difference).
- You trade 1 standard lot (100,000 units)
- 1 pip = 0.0001 × 100,000 = $10 per pip
- Total profit = 10 pips × $10 = $100
Formula:
| Pip Value = (0.0001 ÷ Exchange Rate) × Lot Size |
For JPY-Based Pairs (e.g., USD/JPY)
Example Calculation:
Suppose USD/JPY moves from 110.25 to 110.35
That’s a change of 10 pips (0.10 difference since 1 pip = 0.01 for JPY)
- Trading 1 standard lot (100,000 units)
- 1 pip = 0.01 × 100,000 = ¥1,000, which is approx $9.09
Use broker-provided tools or real-time rates for exact USD value.
Pip Value by Lot Size (Micro, Mini, Standard)
| Lot Size | Units Traded | Pip Value (EUR/USD) | Pip Value (USD/JPY) |
| Micro | 1,000 | $0.10 | ~$0.09 |
| Mini | 10,000 | $1.00 | ~$0.91 |
| Standard | 100,000 | $10.00 | ~$9.09 |
Pro Tip: Always check pip values on your platform—they may vary based on base/quote currencies and live FX rates.
For example, if GBP/USD moves 25 pips:
- In a micro lot, profit/loss = 25 × $0.10 = $2.50
- In a mini lot, P/L = 25 × $1.00 = $25.00
- In a standard lot, P/L = 25 × $10.00 = $250.00
Knowing the pip value relative to lot size is essential for accurate position sizing and risk management.
Types of PIPs in Trading
Fractional PIP / Pipette
A pipette, or fractional pip, is one-tenth of a pip. It is used by brokers who quote prices to 5 decimal places (e.g., 1.10563 instead of 1.1056) or 3 decimal places in JPY pairs. In this case, the final digit represents a pipette (0.00001) for non-JPY pairs, or 0.001 for JPY-based ones.
For example:
- EUR/USD moves from 1.10563 to 1.10573 → 1 pip (10 pipettes)
- USD/JPY from 110.251 to 110.261 → 1 pip (10 pipettes)
Pipettes enable tighter spreads and more precise execution, especially for high-frequency or scalping strategies. While pipettes affect intra-pip price movements, they are usually not included in core profit/loss calculations unless working with high-volume accounts or advanced systems.
Fixed vs Floating Pip Spread
The spread is the difference between the bid and ask price of a currency pair, measured in pips. Spreads can be fixed or floating, depending on the broker and account type.
- Fixed spread: The pip spread remains constant regardless of market volatility. For example, EUR/USD may always show a 2-pip spread.
- Floating spread: The spread varies based on liquidity and volatility. During high-impact news releases, EUR/USD spread may widen from 0.6 pips to 5+ pips.
| Type | Pros | Cons |
| Fixed Spread | Predictable costs | Usually higher than floating spreads |
| Floating | Lower in stable markets | Spikes during volatility |
Spreads directly impact your transaction cost per trade.
For example, with a 2-pip spread, a trade must move at least 2 pips in your favor before becoming profitable.
Understanding spread structure is essential when selecting a broker or trading strategy.
Common Mistakes When Understanding or Using PIPs
Understanding pips is foundational to forex trading, yet many beginners misapply them in ways that lead to poor trade execution or risk exposure. Below are common errors traders make:
1. Confusing Pip with Pipette
Traders often assume the fifth decimal (in 5-digit quotes) is a pip, not a pipette. For example, moving from 1.10565 to 1.10575 is 1 pip, not 10 pips. Misreading this leads to incorrect profit/loss estimates.
2. Misjudging Pip Value Across Pairs
The pip value is not uniform across all currency pairs. USD-based and JPY-based pairs differ in decimal precision and pip valuation. Applying the same calculation across all pairs leads to errors in risk assessment and trade sizing.
3. Using the Wrong Lot Size in Calculations
Many traders calculate pip value assuming a standard lot ($10 per pip), even when trading micro or mini lots. This causes unrealistic expectations in both profits and stoploss limits.
4. Ignoring the Spread in Pip-Based Strategy
Spreads consume part of every trade. A 2-pip profit target in a pair with a 2-pip spread results in zero gain. Beginners often forget to include spreads in pip-based calculations for scalping or tight stoploss setups.
5. Using Fixed Pip Stops Regardless of Volatility
Setting a uniform 20-pip stop across all trades ignores volatility. In high-volatility markets, 20 pips may be too tight. In slow markets, it may be too loose. Stoploss levels should be adaptive, not fixed by pip count alone.
How PIPs Relate to Other Forex Metrics
Pips are often confused with related metrics in forex and other markets. Understanding the distinction helps interpret charts, broker statements, and risk calculations accurately.
PIP vs Pipette vs Tick
- A pip is the standard unit of measurement in forex price movement—typically the fourth decimal (0.0001) in most pairs.
- A pipette is one-tenth of a pip (0.00001), used for more granular pricing by brokers quoting five decimal places.
- A tick is a general term across markets for the smallest possible price movement in any instrument. In forex, 1 tick may equal a pipette or pip depending on platform configuration.
Summary:
- Pip: 0.0001 (standard movement)
- Pipette: 0.00001 (fractional)
- Tick: Generic term, platform-dependent
PIP vs Point
In forex, pips are the correct measure of price change. However, points are more common in other markets such as indices, futures, or CFDs.
- In indices (e.g. S&P 500), 1 point = 1.0 price move
- In forex, 1 point = 10 pips (in 4-digit systems) on some platforms, but usage varies
Many retail platforms (e.g. MetaTrader) use the term “point” to refer to pipettes, which causes confusion.
Clarification: Always verify with your platform whether “point” means pip, pipette, or index unit.
PIP vs Spread
- A pip measures price movement.
- A spread is the difference between the bid and ask, expressed in pips.
For example:
- EUR/USD bid: 1.1050
- Ask: 1.1052 → 2-pip spread
Spreads represent transaction cost.
The higher the spread, the more the price must move in your favor to reach breakeven.
Broker type (ECN vs market maker) and account type affect spread structure.
FAQs About PIPs in Forex
Q1. How many pips is 1 point in forex?
In forex, the term “point” is often used interchangeably with pip or pipette, depending on the platform. On MetaTrader, 1 point usually equals 1 pipette, or 0.1 pip. On other platforms or in general trading language, 1 point may mean 1 full pip. Always check how your broker defines it.
Q2. How much is 10 pips worth in USD?
The dollar value of 10 pips depends on your lot size and currency pair. For a standard lot (100,000 units), 1 pip is worth $10, so 10 pips = $100. For a mini lot (10,000), it equals $10, and for a micro lot (1,000), it’s $1. This assumes a USD-quoted pair like EUR/USD.
Q3. Do all brokers use pips the same way?
Most forex brokers use standard pip definitions, but there are differences:
- Some show 5-digit quotes (with pipettes), others 4-digit
- Pip value may vary slightly depending on base/quote currencies
- Brokers may label pipettes as points, which causes confusion
Always confirm pip interpretation in your broker’s documentation or trading platform.
Q4. Can I calculate pip value manually?
Yes. The basic formula for a USD-quoted pair (e.g., EUR/USD) is:
Pip Value = (0.0001 ÷ Exchange Rate) × Lot Size
For USD-based accounts trading USD quote pairs, pip value is fixed ($10 per pip for standard lots). For non-USD accounts or non-USD pairs, you may need to adjust using the cross rate.
Q5. Are pips used in crypto or stock trading?
No. Pips are specific to forex.
- In crypto, price movement is measured in dollar units or basis points (bps)
- In stocks, movement is tracked in points or cents
However, the concept of price increments is similar to pips in other asset classes.
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