Financial Analyst/ Guest author, RADEX MARKETS
Lee W. is a seasoned professional trader with over 10 years of experience. Passionate about sharing valuable expertise and unique market insights, Lee W. now serves as an external and independent market analyst for RADEX MARKETS.
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In forex trading, pips and pipettes are terms you will see constantly on your charts, in trade tickets, and in profit and loss statements. In simple terms, a pip is the standard unit traders use to measure how much a currency price moves. It matters because every gain, loss, spread, and trading cost is ultimately measured in pips.
To put it simply, if you do not understand what a pip is, you cannot accurately understand how much you are risking or making on a trade. This introduction will explain what pips are, why they exist, and why they play such an important role in forex trading. As a result, you will be better prepared to understand pricing, position size, and profitability as we move through the rest of the article.
In forex trading, a pip is the standard unit used to measure price movement between two currencies. The term “pip” refers to percentage in point or price interest point, and it represents the smallest typical change in a currency pair’s exchange rate.
In simple terms, for most major currency pairs, one pip equals the fourth decimal place (0.0001). For example, if EUR/USD moves from 1.1000 to 1.1001, that price change is exactly one pip. This matters because traders use pips, not dollars, to describe gains, losses, spreads, and risk.
Most modern forex platforms display prices with five decimal places. In this case, the fifth decimal place represents a smaller unit called a pipette, which we will cover shortly. For this reason, understanding where the pip sits in the price quote is essential before calculating profit or loss.
Japanese yen (JPY) currency pairs follow a different structure. Instead of four decimal places, most JPY pairs are quoted to two decimal places, meaning one pip is typically 0.01. For example, if USD/JPY moves from 150.20 to 150.21, that one-point movement equals one pip.
This difference exists because the Japanese yen has a much lower value relative to other major currencies. As a result, pip placement is adjusted to keep price movements readable and practical for traders.
Here’s how a pip works in practice:
Each of these movements is expressed in pips so traders can compare price changes consistently across different currency pairs. This is why pips are the common language of the forex market.
New traders often confuse pips with the spread, but they are not the same thing. A pip measures price movement, while the spread represents the cost of entering a trade, measured in pips.
For example, if EUR/USD has a spread of 1.2 pips, the market must move at least 1.2 pips in your favour before the trade becomes profitable. Understanding this difference is crucial when evaluating trading costs and potential returns.
Read more:What Is the Spread in Forex? Learn to Calculate and Trade It
In forex trading, the unit smaller than a pip is called a pipette. A pipette represents one-tenth of a pip and provides more precise price measurement in modern trading platforms.
To put it simply, if a pip is the main unit of movement, a pipette is the extra decimal that allows brokers to show tighter pricing. Most major currency pairs are now quoted to five decimal places, where the fifth decimal place is the pipette. For example, a move from 1.10500 to 1.10501 equals one pipette, while a move to 1.10510 equals one full pip.
Here’s how pip and pipette placement works in practice:
Understanding this distinction helps traders accurately read spreads, volatility, and execution prices. This matters because even small fractional movements can impact short-term trades.
Pipettes were introduced to improve pricing precision and execution quality. They serve several important purposes:
As a result, pipettes give traders a clearer view of real-time market movement, especially during volatile periods.
When calculating spreads, volatility, or profit and loss, pipettes are simply fractions of a pip. Ten pipettes equal one pip. For example, a spread quoted as 12 pipettes is the same as a 1.2-pip spread.
For this reason, traders usually focus on pips for analysis and risk management, while pipettes provide extra precision behind the scenes.
In simple terms, pips measure standard price movement, while pipettes measure finer detail within that movement. Both work together to give traders accurate pricing and better execution.
Pip vs Pipette Comparison Table
Item |
Pip |
Pipette |
|---|---|---|
| Definition | Standard unit of price movement | One-tenth of a pip |
| Decimal Place | 4th decimal (0.0001) | 5th decimal (0.00001) |
| Example | EUR/USD from 1.1000 to 1.1001 | EUR/USD from 1.10000 to 1.10001 |
| Main Usage | Measure market movement | Increase pricing precision |
| Impact on Trading | Determines profit and loss | Improves execution accuracy |
| Commonly Found In | All forex trading platforms | Modern broker pricing |
| Trader Usage Frequency | Very high | Mostly behind the scenes |
| Why It Exists | Standardised measurement | Tighter spreads and precision |
The value of a pip in forex trading is not fixed. It changes depending on the currency pair you trade, the current exchange rate, and your position size. This matters because the same 10‑pip move can mean very different profits or losses depending on how the trade is structured.
In simple terms, pips measure movement, but pip value measures money. The following sections will show you how to identify pip movements and calculate what one pip is actually worth in real terms.
USD‑quoted pairs are currency pairs where the US dollar is the quote currency, such as EUR/USD, GBP/USD, and AUD/USD. These are the easiest pairs for beginners to calculate pip value.
The core principle is simple:
Pip Value = Pip Size × Lot Size
For most non‑JPY pairs, the pip size is 0.0001.
Example:
This means thatevery 1‑pip move in EUR/USD equals a $10 profit or loss when trading one standard lot. For this reason, USD‑quoted pairs are often recommended for new traders learning position sizing and risk management.
Key characteristics of pip value for USD‑quoted pairs:
Cross pairs are currency pairs that do not include the US dollar, such as EUR/GBP, AUD/CAD, or GBP/JPY. Calculating pip value for these pairs requires one extra step.
The formula is:
Pip Value = (0.0001 × Trade Size) ÷ Market Price
Example:
If your trading account is not denominated in euros, this amount must then be converted into your account currency. As a result, pip value for cross pairs fluctuates as exchange rates change.
Japanese yen (JPY) pairs are quoted differently, using two decimal places instead of four. This means the pip size is 0.01, not 0.0001.
The formula for JPY pairs is:
Pip Value = (0.01 × Lot Size) ÷ Exchange Rate
Example:
Because of this structure, pip values on JPY pairs are usually smaller compared to major USD‑quoted pairs. For this reason, traders must always check pip value before setting stops or targets.
In practice, once you understand these three categories, USD‑quoted pairs, cross pairs, and JPY pairs, you can calculate pip value for any forex trade with confidence.
In forex trading, pip movement is what determines whether you make a profit or a loss. Every trade outcome is calculated by multiplying the number of pips gained or lost by the pip value of your position.
In simple terms, price moves first in pips, and money comes second. This is why experienced traders think in pips when analysing trades and only translate those pips into monetary terms when managing risk and position size.
A Simple Profit and Loss Example
Here’s how this works in practice:
The same 10-pip move with a smaller lot size would result in a smaller profit, while a larger lot size would amplify both gains and losses. For this reason, pip value and position size must always be considered together.
Pip Value and Profitability Comparison Table
The table below shows how pip values differ across currency pairs and how this directly affects potential profit or loss per pip.
FX Pair |
One Pip |
Lot Size |
Pip Value per Lot |
Price of Trade |
P/L per 1 Pip |
|---|---|---|---|---|---|
| EUR/USD | 0.0001 | 1 Standard | $10.00 | 1.1000 | $10.00 |
| GBP/USD | 0.0001 | 1 Standard | $10.00 | 1.2500 | $10.00 |
| USD/JPY | 0.01 | 1 Standard | $6.67 | 150.00 | $6.67 |
| EUR/GBP | 0.0001 | 1 Standard | £10.00* | 0.8600 | £10.00* |
| AUD/CAD | 0.0001 | 1 Standard | C$10.00* | 0.9000 | C$10.00* |
Pip values marked with an asterisk may require conversion depending on your account currency.
This table highlights an important lesson: not all pips are equal in monetary terms. As a result, traders must always calculate pip value before entering a trade, especially when trading cross pairs or JPY pairs.
Understanding how pips translate into profit and loss is a key step toward consistent risk management and long-term trading discipline.
Pip value in forex trading is not constant. It changes based on several variables, including the currency pair being traded, exchange rate movements, and how the trade is structured. When the quote currency is not USD or when exchange rates fluctuate, the monetary value of one pip will also change.
This matters because even if a trade moves the same number of pips, the actual profit or loss can differ from one trade to another. The following factors explain why pip value rises or falls under different market conditions.
The quote currency determines whether a pip value requires conversion. When USD is the quote currency (such as EUR/USD), pip value is straightforward and remains fixed for a given lot size.
However, when the quote currency is not USD, for example, EUR/GBP, the pip value must be converted using the relevant exchange rate. As a result, the pip value fluctuates alongside the market price.
Example: If one pip on EUR/GBP is worth €10 but your account is denominated in USD, that €10 must be converted into dollars. Any movement in the EUR/USD exchange rate will therefore change the dollar value of each pip.
For this reason, cross pairs introduce an extra layer of variability that traders must account for.
Lot size is one of the most significant factors influencing pip value. The larger the position size, the more money each pip movement represents.
In simple terms:
Example: A 10-pip move on EUR/USD equals approximately $1 on a micro lot, $10 on a mini lot, and $100 on a standard lot. This is why increasing lot size increases both potential gains and potential losses.
When a currency pair does not include your account currency, pip value must be converted through the current exchange rate. This conversion causes pip value to fluctuate even if the number of pips remains the same.
As exchange rates change throughout the trading day, the monetary value of each pip can rise or fall. For this reason, pip value on cross pairs is less stable than on USD-quoted pairs.
If your account currency matches the quote currency, pip value remains fixed. However, when your account currency differs, e.g., a EUR-denominated account trading USD/JPY, the platform must convert pip value into your account currency.
Example: A USD/JPY trade may generate a profit of $50, but if your account is in euros, that $50 will be converted at the prevailing EUR/USD exchange rate. As a result, the final profit in euros may differ slightly from trade to trade.
Understanding these factors allows traders to anticipate how pip value will behave and manage risk more effectively under changing market conditions.
A pip is more than just a pricing unit; it is the primary tool traders use to understand market movement. Once you understand pips, you can measure volatility, calculate profit and loss, and manage risk with far greater precision.
In simple terms, pips allow traders to turn raw price movement into something measurable and actionable. The following sections explain the practical roles pips play in everyday forex trading decisions.
A pip is the fundamental unit traders use to measure how much the market has moved. Instead of saying a currency moved from 1.1000 to 1.1030, traders simply say the market moved 30 pips.
This matters because pips provide a standardised measurement across all currency pairs. Whether you are analysing EUR/USD or AUD/CAD, pips allow you to compare volatility, assess market strength, and judge whether a move is significant or just market noise.
Pips and pip value work together to determine your profit or loss on every trade. Once you know how many pips the market has moved and how much each pip is worth, calculating P/L becomes straightforward.
For example, a 20-pip gain on a trade with a $5 pip valueresults in a $100 profit. Conversely, a 20-pip loss produces a $100 loss. This is why traders focus on pip targets first and monetary results second.
Pips play a critical role in risk management. Traders use pips to set stop-loss and take-profit levels based on structure and market conditions rather than emotion.
Read more:Forex risk management: 10 tips to manage 6 key risk types in trading
For instance, a trader may place a stop loss 25 pips below entry and a take profit 50 pips above entry. This creates a clear risk-to-reward framework and helps remove guesswork from trade management.
Trading costs in forex are also measured in pips. The spread represents the difference between the buy and sell price and is deducted from your trade the moment you enter.
Example: If EUR/USD has a spread of 1.2 pips, the market must move 1.2 pips in your favour before the trade becomes profitable. This is why tighter spreads are especially important for short-term traders.
By understanding how pips interact with spreads and fees, traders gain a clearer picture of true trading costs and net profitability.
In XAU/USD (Gold vs US Dollar), 1 pip is a price movement of $0.01 (one cent) per ounce. This means a move from $2000.00 to $2000.01 equals one pip, and its monetary value depends on your lot size, e.g., $1 for a standard lot,$0.10 for a mini lot, and $0.01 for a micro lot.
No. For most major currency pairs (excluding JPY pairs), prices are quoted to four decimal places, and one pip equals the fourth decimal place, which is one-hundredth of a cent. Therefore, 100 pips are equal to one full cent, not one pip.
There is no fixed number of pips a trader can make in a day. Daily pip gains depend on market volatility, trading strategy, time frame, and risk management, and consistency matters far more than chasing large pip totals.
No. Most currency pairs use a pip size of 0.0001, while JPY pairs use a pip size of 0.01. Some instruments, such as gold or indices, also use different pip or point structures.
The definition of a pip is standard across brokers, but pricing precision may differ. Some brokers quote prices with pipettes, which adds an extra decimal place and provides tighter spreads and more precise execution.
Forex trading involves significant risk due to leverage, market volatility, and rapid price movements. Traders can lose more than their initial investment if risk is not managed properly, which is why understanding pips, position size, and stop losses is essential.
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