What Is a Pip
Measuring Price Movements in Currency Trading
Introduction
In Forex trading, price changes are measured in units called pips.
A pip is the standard unit used to measure how much a currency pair moves.
Understanding pips is essential because profits and losses in Forex are calculated based on pip movement.
What Does Pip Mean?
Pip stands for “Percentage in Point.”
For most currency pairs, one pip equals:
0.0001
This represents the fourth decimal place in a currency quote.
Example
If EUR/USD moves from:
1.1000 → 1.1005
The price has moved 5 pips.
If it moves from:
1.1000 → 1.0950
The price has moved 50 pips downward.
Exception: Japanese Yen Pairs
For pairs involving the Japanese Yen (JPY), one pip equals:
0.01
Example:
USD/JPY moves from:
110.00 → 110.05
That is a 5 pip movement.
Why Are Pips Important?
Pips determine:
- Trade profit
- Trade loss
- Risk exposure
- Stop-loss placement
Even small pip changes can impact trading results significantly, especially when using leverage.
What Is a Pipette?
Some brokers quote prices with five decimal places.
The fifth decimal place is called a pipette.
It represents one-tenth of a pip.
Example:
1.10005
The last digit is a pipette.
Pip Value
The value of a pip depends on:
- The currency pair
- Trade size (lot size)
- Account currency
Larger positions mean each pip movement has greater financial impact.
Final Thoughts
Pips are the measurement unit of Forex trading.
Understanding how pips work allows traders to calculate potential risk and reward before entering a trade.
Mastering this concept is essential before learning about leverage and margin.