Definition of a Pip
A pip — short for "percentage in point" or "price interest point" — is the standard unit of measurement for price changes in the forex market. For most currency pairs, one pip equals a movement of 0.0001 (the fourth decimal place).
If EUR/USD moves from 1.08500 to 1.08510, the price has moved 1 pip.
For Japanese yen pairs (any pair with JPY as the quote currency), one pip equals 0.01 (the second decimal place) because yen-denominated pairs are quoted to two decimal places:
If USD/JPY moves from 149.500 to 149.510, the price has moved 1 pip.
Why pips matter: Pips give traders a universal way to discuss price movements regardless of the currency pair or the number of decimal places involved. Saying "EUR/USD moved 85 pips today" is far clearer than saying "it moved 0.00850."
Think of pips like centimeters on a ruler. When you measure something, you don't say "it moved 0.0034 meters" — you say "it moved 3.4 centimeters." Pips do the same thing for currency prices. Instead of squinting at tiny decimal changes like 0.0001, traders say "it moved 1 pip." For most currency pairs, 1 pip = the fourth decimal place. For Japanese yen pairs, it's the second decimal place. It's just a simpler way to measure how far a price has moved.
Pipettes: The Fifth Decimal Place
Many modern brokers, including RoboForex, quote prices to five decimal places for standard pairs and three decimal places for JPY pairs. This extra decimal place is called a pipette or fractional pip, and it equals one-tenth of a pip.
| Measurement | Standard Pairs | JPY Pairs |
|---|---|---|
| 1 pip | 0.0001 | 0.01 |
| 1 pipette | 0.00001 | 0.001 |
| Pipettes per pip | 10 | 10 |
So when you see EUR/USD quoted as 1.08523, the "3" at the end is a pipette: the price is 1.0852 plus 3 tenths of a pip.
Pipettes allow brokers to offer tighter spreads. Instead of a minimum spread of 1 pip (0.0001), a broker can offer 0.3 pips (0.00003). For active traders, this fractional precision saves real money over hundreds of trades.
How to Calculate Pip Value
The monetary value of a pip depends on three things: the currency pair, the lot size, and the quote currency of the pair.
Pip Value Formula
Pip Value = (Pip Size / Exchange Rate) x Lot Size
For pairs where USD is the quote currency (like EUR/USD, GBP/USD), the calculation is straightforward because pip value is already in USD:
| Lot Type | Units | Pip Value (USD quote pairs) |
|---|---|---|
| Standard lot | 100,000 | $10.00 per pip |
| Mini lot | 10,000 | $1.00 per pip |
| Micro lot | 1,000 | $0.10 per pip |
For pairs where USD is the base currency (like USD/JPY, USD/CHF), or for cross pairs (like EUR/GBP), the pip value must be converted to your account currency:
USD/JPY example (1 standard lot, USD/JPY at 149.50):
- Pip size for JPY pairs = 0.01
- Pip Value = (0.01 / 149.50) x 100,000 = $6.69 per pip
EUR/GBP example (1 standard lot, GBP/USD at 1.2700):
- Pip Value in GBP = (0.0001 / 1) x 100,000 = 10 GBP per pip
- Converted to USD = 10 x 1.2700 = $12.70 per pip
You do not need to calculate pip values manually for every trade. MetaTrader 4 and most trading platforms display pip value automatically when you open a position. However, understanding the concept helps you plan trades and manage risk more effectively.
Pip Value by Currency Pair
Here is a quick reference for pip values per standard lot on commonly traded pairs. These values fluctuate slightly as exchange rates change:
| Currency Pair | Approximate Pip Value (1 Standard Lot) |
|---|---|
| EUR/USD | $10.00 |
| GBP/USD | $10.00 |
| AUD/USD | $10.00 |
| NZD/USD | $10.00 |
| USD/CAD | ~$7.40 (varies with CAD rate) |
| USD/JPY | ~$6.70 (varies with JPY rate) |
| USD/CHF | ~$11.20 (varies with CHF rate) |
| EUR/JPY | ~$6.70 (varies with JPY rate) |
| GBP/JPY | ~$6.70 (varies with JPY rate) |
Notice that all pairs where USD is the quote currency have a fixed pip value of exactly $10 per standard lot. This is because the pip value is already denominated in dollars.
How Spread Is Measured in Pips
The spread — the difference between the bid (sell) price and the ask (buy) price — is measured in pips and represents your transaction cost on every trade.
Example: EUR/USD is quoted at:
- Bid: 1.08500
- Ask: 1.08513
- Spread: 1.3 pips (or 13 pipettes)
When you open a buy trade, you enter at the ask price. The market must move 1.3 pips in your favor before you break even. This is why lower spreads directly translate to lower trading costs.
| Account Type | Typical EUR/USD Spread | Cost per Round Turn |
|---|---|---|
| ProCent | ~1.3 pips | $0.13 per cent lot (1,000 units) |
| ECN | ~0.1 pips + commission | ~$5.30 per standard lot ($1 spread + ~$4.30 at $20 per $1M, both sides) |
| Prime | ~0.1 pips + commission | ~$3.20 per standard lot ($1 spread + ~$2.20 at $10 per $1M, both sides) |
| Pro | ~1.3 pips | $13.00 per standard lot |
For frequent traders, the difference between a 1.3-pip spread and a 0.1-pip spread adds up dramatically. Over 100 standard-lot trades per month, that is about $1,300 in spread on Pro versus about $530 in spread plus commission on ECN.
How Pips Relate to Profit and Loss
Your profit or loss on any forex trade is calculated in pips and then converted to your account currency:
Profit/Loss = (Pips Gained or Lost) x Pip Value x Number of Lots
Example 1: Profitable trade
- You buy 0.10 lots (mini lot) of EUR/USD at 1.08500
- Price rises to 1.08750 — a move of 25 pips
- Profit = 25 pips x $1.00 per pip = $25.00
Example 2: Losing trade
- You sell 0.05 lots of EUR/USD at 1.08500
- Price rises to 1.08700 — a move of 20 pips against you
- Loss = 20 pips x $0.50 per pip = -$10.00
Example 3: Micro lot trade (beginner-friendly)
- You buy 0.01 lots (micro lot) of EUR/USD at 1.08500
- Price rises to 1.08650 — a move of 15 pips
- Profit = 15 pips x $0.10 per pip = $1.50
Micro lots are ideal for beginners because even a 50-pip move only equals $5.00 — allowing you to gain real market experience with minimal financial impact.
Using Pips for Stop Loss and Take Profit
When setting your stop loss and take profit levels, thinking in pips helps you maintain consistent risk management:
Example trade plan:
- Entry: Buy EUR/USD at 1.08500
- Stop Loss: 1.08200 (30 pips below entry)
- Take Profit: 1.09100 (60 pips above entry)
- Risk-to-Reward: 1:2 (risking 30 pips to gain 60 pips)
With 0.10 lots:
- Maximum risk: 30 pips x $1.00 = $30.00
- Potential reward: 60 pips x $1.00 = $60.00
- Buy 1.0850, stop 1.0820 (under support), target 1.0910 (at resistance): 30 pips of risk, 60 pips of reward = 1 : 2.
- At 0.10 lots EUR/USD pays $1 per pip: the stop costs $30, the target pays $60.
This is where pips, position sizing, and risk management all come together. You decide your dollar risk first (say 1% of a $3,000 account = $30), determine your stop loss distance in pips from chart analysis (30 pips), and then calculate the position size:
Position Size = $30 / (30 pips x $10) = 0.10 lots
The complete picture: Pips are not just a unit of measurement — they are the building blocks of every aspect of your trading plan: entry precision, risk calculation, position sizing, spread cost analysis, and profit/loss tracking.
Next Steps
Understanding pips is foundational knowledge for every forex trader. Now that you know how to measure price movements, calculate pip values, and use pips in your trading plan, you are ready to build on this knowledge with position sizing and risk management.
Ready to master the complete trading toolkit? Start practicing with real pip values and spreads on a RoboForex demo account: every figure in this guide can be checked there against a live quote.
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Then join the free Trading Masterclass → for 48 structured lessons covering pips, position sizing, risk management, strategy development, and more — all free with your KXTL account.