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.
What Is a Pip in Forex?
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.
A Quick Note on JPY Pairs
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.
Simple Pip Example
Here’s how a pip works in practice:
EUR/USD moves from 1.0850 to 1.0860 → 10 pips
GBP/USD moves from 1.2500 to 1.2495 → 5 pips
USD/JPY moves from 150.30 to 150.40 → 10 pips
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.
Pips vs Spreads (A Common Beginner Confusion)
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
Pips vs. Pipettes: What’s the Difference?
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.
How to Identify Pips and Pipettes in a Price Quote
Here’s how pip and pipette placement works in practice:
EUR/USD quoted at 1.08734
The fourth decimal place (0.0001) is the pip
The fifth decimal place (0.00001) is the pipette
Understanding this distinction helps traders accurately read spreads, volatility, and execution prices. This matters because even small fractional movements can impact short-term trades.
Why Pipettes Exist
Pipettes were introduced to improve pricing precision and execution quality. They serve several important purposes:
Offering more precise pricing
Enabling tighter spreads
Improving order execution accuracy
Reflecting true interbank market prices
Supporting short-term and high-frequency trading strategies
Aligning forex pricing with other financial instruments
As a result, pipettes give traders a clearer view of real-time market movement, especially during volatile periods.
Pips, Pipettes, and Trading Calculations
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.
Summary
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
How to Calculate Pips in Forex
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 Currency Pairs
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:
You trade 1 standard lot (100,000 units) of EUR/USD
Pip size = 0.0001
Pip value = 0.0001 × 100,000 = $10 per pip
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:
Pip value remains constant
No currency conversion is required
Lot size directly determines profit or loss
Cross Currency 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:
You trade 1 standard lot of EUR/GBP
Pip size = 0.0001
Current price = 0.8600
Pip value = (0.0001 × 100,000) ÷ 0.8600 ≈ €11.63 per pip
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.
JPY Currency Pairs
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:
You trade 1 standard lot of USD/JPY
Exchange rate = 150.00
Pip value = (0.01 × 100,000) ÷ 150.00 ≈ $6.67 per pip
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.
How Pips Affect Your Profitability
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:
You buy EUR/USD at 1.1000
You close the trade at 1.1010
The trade moves10 pips in your favour
If your pip value is $10 per pip, your profit is $100
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.
What Influences Pip Value in Forex?
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.
Quoted Currency
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.
Position Size
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:
Micro lot (1,000 units) → smaller pip value
Mini lot (10,000 units) → moderate pip value
Standard lot (100,000 units) → larger pip value
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.
Exchange Rate Conversion
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.
Account Currency
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.
How to Use Pips in Forex Trading
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.
Measure Price Movement
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.
Calculate Profit and Loss
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.
Set Stop Loss and Take Profit Levels
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.
Including Spread and Fees
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.
FAQ
How much is 1 pip in XAUUSD?
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.
Are 100 pips equal to 1 cent?
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.
How many pips can you make in a day?
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.
Do all forex pairs have the same pip size?
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.
Is a pip the same across all brokers?
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.
What risks are involved in forex trading?
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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