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.
How Pips Differ Across Instruments
A "pip" is mainly a forex term, but the principle — a standardised increment of price movement — exists across every market. The exact size of that increment changes depending on what you're trading:
| Instrument type | Price quoted to | 1 "pip" or equivalent | Common term used |
|---|---|---|---|
| Most forex pairs (EUR/USD, GBP/USD) | 4 decimal places | 0.0001 | Pip |
| JPY pairs (USD/JPY, EUR/JPY) | 2 decimal places | 0.01 | Pip |
| Gold (XAU/USD) | 2 decimal places | 0.01 of a USD | Pip or point (broker-dependent) |
| Spot crude oil (WTI, Brent) | 2 decimal places | 0.01 | Point or tick |
| Stock-index CFDs (S&P 500, FTSE 100) | 1 or 2 decimal places | 1.0 of the index value | Point |
| Major cryptocurrencies (BTC, ETH) | Variable | Absolute price change ($) | Dollar movement |
Some brokers use "pip" loosely to describe the smallest tradeable unit on any instrument. When you open a position, check your platform's order ticket — it will show the unit-of-movement convention for that specific instrument.
⚠️ Don’t Compare Pips Across Markets
A 50-pip move on EUR/USD and a 50-pip move on USD/JPY don’t represent the same percentage price change, the same volatility, or the same money outcome. Always normalise to currency terms before comparing trades across pairs or instruments.
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.
Three Worked Pip-Value Examples
The formula for pip value on a pair where the quote currency matches your account currency is:
Example 1: Standard lot on EUR/USD (USD account)
- Position size: 100,000 units (1 standard lot)
- Pip size: 0.0001
- Pip value: 100,000 × 0.0001 = $10 per pip
Example 2: Mini lot on USD/JPY (USD account)
- Position size: 10,000 units (1 mini lot)
- Pip size: 0.01
- Raw value in JPY: 10,000 × 0.01 = 100 JPY per pip
- Convert to USD: 100 JPY ÷ current USD/JPY rate. At 150.00, that’s ~$0.67 per pip
JPY pairs always need an extra conversion step because the quote currency (JPY) isn’t your account currency.
Example 3: Micro lot on GBP/CHF (USD account)
- Position size: 1,000 units (1 micro lot)
- Pip size: 0.0001
- Raw value in CHF: 1,000 × 0.0001 = 0.10 CHF per pip
- Convert to USD: 0.10 CHF ÷ current USD/CHF rate. At 0.90, that’s ~$0.11 per pip
When neither side of the pair is your account currency, you need a two-step conversion through the related rate.
Account Currency Conversion for Pip Value
Pip value gets confusing when the pair you’re trading doesn’t include your account currency. The platform will show you the converted value automatically, but understanding the math helps you sanity-check what you see.
The three account-currency scenarios
- Scenario A — Quote currency matches your account: No conversion needed. Pip value is direct (size × pip size).
- Scenario B — Base currency matches your account: One conversion needed, using the current pair price.
- Scenario C — Neither matches your account: Use the related cross-rate between the quote currency and your account currency.
Worked example: GBP account trading EUR/USD
- Position size: 100,000 EUR/USD (1 standard lot)
- Raw pip value: 100,000 × 0.0001 = $10 per pip
- To express in GBP, divide by the current GBP/USD rate
- If GBP/USD is at 1.25: $10 ÷ 1.25 = £8 per pip
Because conversion rates change moment to moment, the per-pip value in your account currency drifts slightly during the trade. For risk planning, the rate at entry is what matters.
Most platforms display pip value updated in real time. The math above exists so you understand why a 50-pip profit might look slightly different across two different trades on the same pair.
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.
Pip vs Pipette vs Point
Three closely related terms cause persistent confusion among new traders. Each describes a unit of price movement, but the size and context differ:
| Term | Size on EUR/USD | Size on USD/JPY | Where you’ll see it |
|---|---|---|---|
| Pip | 0.0001 (4th decimal) | 0.01 (2nd decimal) | Forex pairs, spread quotes, stop/target distances |
| Pipette | 0.00001 (5th decimal) | 0.001 (3rd decimal) | Fractional-pip pricing on most modern brokers |
| Point | Not used for forex | Not used for forex | Stock indices, commodities, individual stocks |
A pipette is one tenth of a pip. Brokers introduced fractional pricing to offer tighter spreads — a spread of 0.8 pips reads as "8 pipettes". When you see a five-decimal forex quote, the last digit is the pipette.
A point usually refers to whole-number movement on index and stock CFDs. The FTSE 100 moving from 7,800 to 7,801 is "one point". This is much bigger than a pip in money terms.
Pip-Based Risk Management
After "what is a pip", the most common follow-up question is "how many pips should I risk per trade?" Pips and money are two sides of the same coin: pips give you the distance, pip value converts that distance into money.
The relationship between pips, lot size, and risk
Risk per trade follows a simple identity:
Working backwards, if you decide your maximum risk per trade and you know your stop distance, you can solve for the position size:
Worked example: 1% risk on a $10,000 account
- Account balance: $10,000
- Risk per trade (1%): $100
- Stop loss distance: 20 pips on EUR/USD
- Allowable pip value: $100 ÷ 20 = $5 per pip
- Position size: $5 ÷ $0.0001 per unit = 50,000 units (half a standard lot)
Typical stop-loss distances by trading style
Stop-loss distances vary widely with trading style, market volatility, and the specific setup, but as a rough orientation:
- Scalping (sub-15-minute holds): 5–15 pips
- Intraday (1–4 hour holds): 15–50 pips
- Swing trading (multi-day): 50–200 pips
- Position trading (weeks to months): 200+ pips
These are starting ranges. The right stop distance for any specific trade is determined by the setup itself — recent swing points, average true range, or structure levels — not by your trading style alone.
⚠️ Common Sizing Mistake
New traders often pick a position size first (e.g., "I’ll trade 1 mini lot") and accept whatever risk that produces. Professional sizing works in reverse: define risk first in money terms, then derive the position size from the stop distance.
Common Pip Mistakes (and Fixes)
- Confusing pips and pipettes: quotes often show fractional pips.
Fix: know whether the last digit is a pipette (1/10 pip). - Assuming 1 pip is always worth the same: pip value varies by pair and size.
Fix: check pip value in your order ticket. - Ignoring spread in pip terms: spreads are a real cost.
Fix: include spread in your stop/target planning. - Comparing performance across pairs without pip value: 50 pips can mean different money outcomes.
Fix: track both pips and £/€/$ 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
What is a pip in forex trading?
A pip is the standardised unit of price movement used in forex. For most currency pairs it represents the 4th decimal place (0.0001). For JPY pairs it represents the 2nd decimal place (0.01). Traders use pips to describe distances on charts, spread widths, stop-loss and take-profit levels, and the size of a profit or loss.
How is a pip different from a pipette?
A pipette is one tenth of a pip. On a 5-decimal-place forex quote, the last digit is the pipette. Brokers introduced fractional-pip pricing to offer tighter spreads — for example, a spread quoted as "0.8 pips" is really 8 pipettes. The pip remains the standard unit; the pipette is a more granular subdivision.
How much money is one pip worth?
It depends on your position size and the currency pair. For a standard lot (100,000 units) on EUR/USD, 1 pip is worth $10. For a mini lot (10,000 units), $1. For a micro lot (1,000 units), $0.10. If your account currency is not the quote currency, your platform converts the pip value automatically, and the converted figure changes slightly with the current exchange rate.
Why are pips different on JPY pairs?
Japanese yen has a much lower per-unit value than most other major currencies, so JPY pairs are quoted to 2 decimal places instead of 4. By convention, 1 pip on a JPY pair is therefore 0.01 of the quote currency. The principle is the same — the pip is the "standard" smallest tradeable increment — the decimal place just differs.
How many pips should I risk per trade?
There’s no universal answer. Pip risk should be derived from your maximum money risk per trade (commonly 1–2% of account equity) and your stop-loss distance for that specific setup. Most retail traders see stop distances between 5 and 15 pips for scalping, 15 to 50 pips for intraday trades, and 50 to 200 pips for swing trades, but the right distance is dictated by the setup — not by your trading style alone.
Do all instruments use pips?
No. Pips are mainly a forex convention. Stock-index CFDs, individual stocks, and many commodity CFDs measure movement in points or ticks. Major cryptocurrencies typically use absolute dollar movement rather than a fixed unit. Some brokers loosely call any smallest-unit movement a "pip", but the meaning isn’t universal across markets.
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.