What is a pip?

What it is

A pip is the smallest standard unit of price movement in forex trading. When EUR/USD moves from 1.10000 to 1.10010, it has moved one pip. The word stands for "percentage in point" — though in practice most traders just use "pip" and don't worry about the etymology.

Pips are how traders measure profit, loss, spread, and risk. Almost every metric in forex trading eventually comes back to pips.

How it works

For most currency pairs, a pip is the fourth decimal place — 0.0001. So if GBP/USD moves from 1.26500 to 1.26600, that's a 10 pip move.

The exception is currency pairs involving the Japanese yen (JPY). Because the yen has a lower unit value, pip is measured at the second decimal place — 0.01. So USD/JPY moving from 149.50 to 149.60 is a 10 pip move.

Pipettes (fractional pips)

Many brokers now quote prices to a fifth decimal place — 1.100010 rather than 1.10001. That extra digit is a pipette (one tenth of a pip). You'll see these on raw spread accounts in particular. They don't change the fundamentals — just add more precision.

A worked example

You buy 1 standard lot of EUR/USD at 1.10000 and close at 1.10100.

Movement: 1.10100 − 1.10000 = 0.00100
In pips: 0.00100 ÷ 0.0001 = 10 pips
For 1 standard lot (100,000 units), each pip is worth approximately $10 USD
Profit: 10 pips × $10 = $100

If you had traded a mini lot (10,000 units), each pip would be worth $1 and your profit would be $10. This is why lot size and pip value are always discussed together.

Pip value formula (for USD-quoted pairs):
Pip value = (0.0001 ÷ exchange rate) × lot size in units

For EUR/USD at 1.1000 with a standard lot: (0.0001 ÷ 1.1000) × 100,000 = $9.09 per pip

Why it matters

Pips are the language of forex. When a broker quotes you a spread of 0.8 pips, that's how much the trade costs you immediately. When you set a stop loss 30 pips away, that's how far price can move against you before you exit.

Understanding pip value also directly affects how you manage risk. If each pip is worth $10 and you set a 50 pip stop loss, your risk is $500 per trade. Without knowing your pip value, position sizing is guesswork.

Common misconceptions

Pips are not the same as points. In stock and index trading, "points" is used differently. In forex, a pip is a specific, standardised unit. Don't conflate them.
Pip value changes with lot size and exchange rate. A pip on a EUR/USD trade is not the same dollar amount as a pip on a USD/JPY trade at a different exchange rate. Always calculate pip value for the specific pair and lot size you're trading.
More pips doesn't always mean more profit. A 100-pip move with a micro lot (0.01) earns you less than a 10-pip move with a standard lot. Lot size determines how much each pip is worth in cash terms.

The Karnek note

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See it in Karnek: see how Karnek works.