Pip

A pip is the standard minimum price step in forex. For most pairs it is the fourth decimal place (0.0001); for yen pairs it is the second (0.01).

How it works

Pips let you measure price moves the same way across pairs. Instead of saying "EUR/USD rose by 0.0050", traders say "it rose 50 pips". Many brokers also quote a fifth decimal (third for yen pairs): that is a tenth of a pip, called a pipette.

A pip is not a fixed amount of money. Its value depends on the trade size (the lot) and the pair. For pairs with the US dollar second (EUR/USD, GBP/USD), 1 pip on a standard lot of 100,000 units is worth $10, on a mini lot $1 and on a micro lot $0.10.

Stop-losses, take-profits and spreads are measured in pips. Once you know the pip value, you can work out in advance how much money a stop-out costs and size the trade to fit your risk.

Example with numbers 1

EUR/USD rising from 1.0850 to 1.0900 is 50 pips. On 1 standard lot that is $500; on 0.1 lot it is $50.

Example with numbers 2

USD/JPY rising from 150.20 to 150.50 is 30 pips, because for yen pairs one pip is 0.01.

Common mistake

A common mistake is confusing pips with pipettes. If your platform shows EUR/USD at 1.08505, the last digit is tenths of a pip, so a "20-pip" stop means 0.0020, not 0.00020. Another mistake is assuming a pip is always worth $10. That is only true for a standard lot on pairs with the dollar second, so work out the pip value for your lot and pair before you trade.

Questions and answers

What is a pip in forex in simple terms?

It is the unit for measuring price moves. For EUR/USD one pip is 0.0001, for example a move from 1.0850 to 1.0851.

How much is 1 pip worth?

It depends on the lot size and the pair. For EUR/USD, 1 pip is $10 on a standard lot, $1 on 0.1 lot and $0.10 on 0.01 lot.

What is the difference between a pip and a pipette?

A pipette is a tenth of a pip, the fifth decimal place (third for yen pairs). Ten pipettes make one pip.

Pip

How it works

Questions and answers

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