Pips
A pip is a standard unit used to measure price movement (most commonly in forex). Traders use pips to describe how far price moved, the size of a spread, and profit or loss.
In plain English: "How many steps did price move?"
If you understand pips, you can start measuring risk and performance in a consistent way.
What Is a Pip?
A pip is a standardised increment of price movement:
- Most currency pairs: 1 pip = 0.0001 (the 4th decimal place).
- JPY pairs (e.g., USD/JPY): 1 pip = 0.01 (the 2nd decimal place).
⚠️ Why Pips Exist
Forex pairs trade at very different price levels. Pips give traders a consistent "movement unit" across pairs.
Where Traders Use Pips
- Spread: the bid–ask difference is often quoted in pips.
- Stop loss and take profit: "My stop is 20 pips away."
- Performance: "That trade made 35 pips."
- Risk planning: "I risk 15 pips to target 30 pips."
In other markets, traders often use points or ticks instead.
Pip Value: What 1 Pip Is Worth
Pip value depends on:
- Position size: larger size = larger pip value.
- Currency pair: especially the quote currency (the second currency in the pair).
- Your account currency: your platform may convert pip value into your base currency.
| What changes? | What happens to pip value? | Practical note |
|---|---|---|
| Order size increases | Pip value increases | Risk rises quickly if you size too large. |
| Different pair | Pip value differs | JPY pairs have different pip decimals and conversions. |
| Account currency changes | Conversion may apply | Your platform often shows pip value automatically. |
Most platforms display pip value on the order ticket. Use it and focus on consistent risk per trade.
Examples: Counting Pips
Example 1: EUR/USD (4 decimals)
EUR/USD moves from 1.1000 to 1.1015 → 15 pips.
Example 2: USD/JPY (2 decimals)
USD/JPY moves from 140.20 to 140.65 → 45 pips.
The "pip" is tied to the standard decimal place for that pair.
Common Pip Mistakes (and Fixes)
- Confusing pips and pipettes: quotes often show fractional pips.
Fix: know whether the last digit is a pipette (1/10 pip). - Assuming 1 pip is always worth the same: pip value varies by pair and size.
Fix: check pip value in your order ticket. - Ignoring spread in pip terms: spreads are a real cost.
Fix: include spread in your stop/target planning. - Comparing performance across pairs without pip value: 50 pips can mean different money outcomes.
Fix: track both pips and £/€/$ risk.
⚠️ Practical Rule
Measure your plan in pips (distance) and manage your risk in money (how much you can afford to lose).
Common Misconceptions
- "If I make 20 pips, that's always good."
It depends on the risk you took. - "Pips only matter in forex."
They are mainly a forex convention, but the idea (standard movement unit) exists elsewhere. - "Pip value is too complicated."
You don't need formulas — just remember it changes with size and pair, and confirm it in your ticket.
✅ Quick Checkpoint
Try answering before expanding the model answers.
1) For most forex pairs, what decimal place is 1 pip?
The 4th decimal place (0.0001).
2) For JPY pairs, what decimal place is 1 pip?
Usually the 2nd decimal place (0.01).
3) What determines pip value?
Position size, the currency pair, and your account currency (conversion).
Next lesson: Pipettes.
Frequently Asked Questions: Pips
Are pips the same as points?
Not exactly. "Pips" are mainly used in forex. "Points" are more common in indices and some CFDs.
How do brokers quote five decimals?
Many brokers show fractional pip pricing. The extra digit is commonly a pipette (one-tenth of a pip).
How many pips is the spread?
Spread is the bid–ask difference. Platforms often show it directly in pips (e.g., 0.8 pips).
Is pip value fixed for a standard lot?
It can be approximately stable for some pairs/account currencies, but it still varies with exchange rates. Always confirm on your platform.
Summary
A pip is a standard unit of price movement used mainly in forex. It helps traders measure spreads, risk distance and performance. Pip value (money impact) depends on position size, the currency pair, and your account currency.
Next lesson: Pipettes.