TRADING GLOSSARY

Pip: the smallest price movement in forex trading

A pip (percentage in point) is the smallest standard unit of price movement in forex trading. For most currency pairs, one pip equals 0.0001 (the fourth decimal place). For Japanese yen pairs, one pip equals 0.01 (the second decimal place).

How pips work

If EUR/USD moves from 1.1000 to 1.1001, it has moved 1 pip. If it moves from 1.1000 to 1.1050, it has moved 50 pips. For USD/JPY, a move from 150.00 to 150.01 is 1 pip.

Many brokers now show a fifth decimal place (called a pipette or fractional pip). A move from 1.10000 to 1.10001 is 0.1 pip or 1 pipette. This provides more precise pricing.

Calculating pip value

The monetary value of a pip depends on three factors: the currency pair, the size of your position, and the quote currency. For a standard lot (100,000 units) of EUR/USD, one pip is worth approximately $10. For a mini lot (10,000 units), one pip is worth $1. For a micro lot (1,000 units), one pip is worth $0.10.

The formula is: Pip Value = (Pip Size / Exchange Rate) × Position Size. For pairs where USD is the quote currency (EUR/USD, GBP/USD), each pip on a standard lot is always worth $10 regardless of the exchange rate. For pairs where USD is the base currency (USD/JPY, USD/CHF), the pip value varies with the exchange rate.

Why pips matter

Understanding pip values is essential for calculating potential profit and loss, determining appropriate position sizes, and setting accurate stop loss and take profit orders. If your stop loss is 30 pips away and you are trading 1 standard lot, your risk is approximately 30 × $10 = $300. AskTrade’s free pip calculator helps you compute these values instantly.

Disclaimer: This is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss.

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