What Is a Pip in Forex? A Plain-English Guide

What is a pip? A pip is the standard small step in a forex price, and for most currency pairs it is the fourth decimal place, or 0.0001. Traders use pips to measure how far a price moved, how wide a spread is and how big a stop loss should be, so the idea comes up in almost every forex conversation.

What is a pip, exactly?

The word is short for "percentage in point". In practice it is simply the unit everyone agrees on. If EUR/USD moves from 1.1000 to 1.1001, it has moved one pip. If it moves from 1.1000 to 1.1050, it has moved fifty pips.

Using pips instead of raw prices keeps the language simple. Saying "the price rose fifty pips" means the same thing on every platform, whatever the quote looks like. It also lets you compare moves across different pairs on an equal footing.

Most platforms, including MetaTrader 5, show one extra decimal place beyond the pip. That extra digit is called a pipette, and it is one tenth of a pip. A quote of 1.10005 is a half pip above 1.1000.

Which decimal place is the pip?

For most pairs the pip is the fourth decimal place. The main exception is any pair with the Japanese yen, where the pip is the second decimal place, or 0.01.

• EUR/USD at 1.1000: one pip is 0.0001
• GBP/USD at 1.3000: one pip is 0.0001
• USD/JPY at 150.00: one pip is 0.01

So if USD/JPY moves from 150.00 to 150.50, that is fifty pips, exactly like the EUR/USD example above. The scale of the quote is different, but the pip count is read the same way. The full list of pairs is on the forex trading page.

How much is a pip worth in money?

A pip is a distance, not an amount of money. What it is worth depends on the size of the position you hold. For a pair quoted against the US dollar, such as EUR/USD, the working is simple:

1. Take the position size in currency units.
2. Multiply by 0.0001.
3. The result is the value of one pip in dollars.

For example, a position of 100,000 units (one standard lot) is worth 100,000 × 0.0001 = $10 per pip. A position of 10,000 units (a mini lot) is worth $1 per pip, and 1,000 units (a micro lot) is worth $0.10 per pip. These figures are illustrative, but the arithmetic is the same for any position. If you want the lot sizes explained in more depth, see our guide to lot size in forex.

A pip is a distance. Its value in money depends on your position size.

A worked example with profit and loss

Suppose you open a position of one mini lot, 10,000 units, on EUR/USD at 1.1000, so each pip is worth $1.

• If the price rises to 1.1040, it has moved 40 pips in your favour, and the position is up 40 × $1 = $40.
• If the price falls to 1.0970, it has moved 30 pips against you, and the position is down 30 × $1 = $30.

Now imagine the same trade with a standard lot. Each pip is worth $10, so the same 40 pip move is $400 and the same 30 pip move is $300. The market did exactly the same thing. Only the size changed, and with it the result. That is why new traders are encouraged to start small and to size every trade deliberately.

Pips and the spread

The spread, the gap between the price you can buy at and the price you can sell at, is also measured in pips. If the bid is 1.1000 and the ask is 1.1002, the spread is 2 pips. On a mini lot that costs about $2 as soon as the trade opens. Spreads from 0.3 pips are available on the DMA Capitals Standard account, which has zero commission, so the cost per trade can be small. You can read the full breakdown in What Are Forex Spreads and How Are They Calculated?

Using a pip calculator

You do not have to do the sums by hand each time. The pip calculator converts a pip count into money for your pair and lot size. Pip values for pairs that do not end in the dollar are converted using the current exchange rate, which is an extra reason to let a tool handle it.

It also pairs well with the risk calculator, which helps you decide how many lots a trade can carry when you know how many pips your stop is away. Pips, lot size and risk fit together, and learning them in that order makes each easier.

What to do next

Open a free demo account and place a few tiny trades. Watch the pip count on the platform change as the price moves, and check that the money figure matches your own sum. A few practice trades with virtual money will make the idea feel natural. Remember that leveraged trading carries a high risk of loss; the risk warning explains more.