What Is a Pip in Forex? Complete Guide to Forex Pips 2025

Ever looked at a forex chart and seen the price move from 1.0850 to 1.0851？ That tiny change is called a pip, and it matters a lot in trading. You've just seen something that all forex traders pay close attention to.

　　The term pip is one of the most basic concepts you'll learn as you start trading. It serves as the main unit of measurement in the foreign exchange market.

　　This guide will define what pips in forex are. It will also show you how to calculate them, understand what they're worth in money terms, and use them to make better trading decisions. By the end, you'll speak the language of the market like a pro.

The Core Pip Concept

　　To trade well, you need to understand the unit you're trading in. A pip is the smallest step of price movement.

A Simple Definition

　　Pip stands for "Percentage in Point" or "Price Interest Point." It shows the smallest standard price move a currency pair can make.

　　Think of a pip like a cent to a dollar in the world of currency trading. It's how we measure whether we're winning or losing money.

The Standard Rule

　　For most major currency pairs, like EUR/USD, GBP/USD, and AUD/USD, a pip is a move in the fourth decimal place.

　　This means it equals 1/100th of 1%, or 0.0001.

　　For example, if EUR/USD moves from 1.1050 to 1.1051, that's one pip. If it moves from 1.1050 to 1.1060, that's a ten-pip move.

The Japanese Yen Exception

　　There's one big exception to the fourth-decimal-place rule: pairs with the Japanese Yen (JPY).

　　For any pair with JPY, such as USD/JPY or EUR/JPY, a pip is a move in the second decimal place.

　　This is because the Yen has a much lower value compared to other major currencies.

　　For instance, if USD/JPY moves from 145.52 to 145.53, that's one pip. A move from 145.52 to 146.52 would be a 100-pip move.

　　This follows the standard definition of a pip used across the trading world.

The Cornerstone of Trading

　　Pips are more than just a definition. They form the base for all trading analysis and actions.

　　The entire forex market, which is huge, is measured in these tiny changes. The market trades over $7.5 trillion per day, according to the Bank for International Settlements (BIS) Triennial Survey, and pips help us track movement in this vast money ocean.

　　Pips play three key roles in every trade you make:

• Measuring Profit and Loss: Your success or failure is counted in the number of pips you gain or lose.
• Calculating the Spread: The cost to enter a trade, known as the spread, is measured in pips.
• Setting Risk and Reward: Your risk tools, like stop-loss and take-profit orders, are set by a specific number of pips from your entry price.

　　

Calculating Pip Value

　　Understanding pips becomes truly useful when you can convert them to money. The value of a single pip tells you how much you'll make or lose for each pip the market moves.

　　

Three Key Factors

　　The exact money value of a pip isn't fixed. It always depends on three things:

• The currency pair you're trading.
• The size of your trade (your lot size).
• The base currency of your trading account.

　　

The Pip Value Formula

　　To find the value of a pip, we use a simple formula. This helps with proper risk control.

　　Pip Value = (Pip in decimal form / Exchange Rate) * Lot Size

　　The "Pip in decimal form" is 0.0001 for most pairs, or 0.01 for JPY pairs. The "Lot Size" is how many currency units you're trading.

　　

Example 1: USD as Quote Currency

　　Let's find the pip value for EUR/USD in a USD account. This is the easiest calculation.

　　The "quote" currency is the second one listed in a pair (XXX/USD). When your account currency matches the quote currency, the math is simple.

　　Let's say we're trading a standard lot, which is 100,000 units of the base currency (EUR).

• Pip in decimal form: 0.0001
• Lot Size: 100,000 EUR
• Formula: 0.0001 * 100,000

　　The pip value is $10. For a standard lot of any pair where USD is the quote currency (like EUR/USD, GBP/USD, AUD/USD), the pip value is always $10.

　　For a mini lot (10,000 units), it's $1. For a micro lot (1,000 units), it's $0.10.

　　

Example 2: USD is Not the Quote

　　Now, let's look at a harder example: finding the pip value for EUR/GBP in a USD account.

　　Here, we need an extra step because our account currency (USD) isn't part of the pair.

• Currency Pair: EUR/GBP
• Current EUR/GBP Exchange Rate: 0.8500
• Trade Size: One standard lot (100,000 EUR)
• Current GBP/USD Exchange Rate: 1.2500 (Needed for conversion)

　　First, we find the pip value in the quote currency (GBP).

• Pip Value in GBP = (0.0001 / 0.8500) * 100,000 = 11.76 GBP

　　Now, we must convert this value to our account currency, USD.

• Pip Value in USD = 11.76 GBP * 1.2500 (the GBP/USD rate) = $14.70

　　So, for this trade, each pip of movement is worth $14.70.

　　Most trading platforms show you the pip value automatically. For more practice, you can find a complete guide to pips and pipettes that often includes helpful calculators.

　　

Beyond the Basics

　　As you look at live prices from brokers, you'll notice two other related ideas: pipettes and spreads. You need to know these for a full picture.

　　

What is a Pipette？

　　Many modern forex brokers give more precise pricing by adding an extra decimal place to their quotes. This fraction of a pip is called a pipette.

　　A pipette equals one-tenth of a pip.

　　For most pairs, a pipette is the fifth decimal place (0.00001). For JPY pairs, it's the third decimal place (0.001).

　　If EUR/USD moves from 1.10505 to 1.10506, that's a one-pipette move. It gives a more detailed view of price action, but the pip remains the main unit for analysis.

　　

Pips and The Spread

　　The spread is the gap between the buy (ask) price and the sell (bid) price of a currency pair at any moment.

　　This gap is measured in pips. The spread is your broker's fee for making the trade happen and is the first cost you must overcome to make a profit.

　　For example, if a broker quotes EUR/USD with a bid price of 1.08500 and an ask price of 1.08511, we can find the spread.

　　The difference is 1.08511 - 1.08500 = 0.00011. This means the spread is 1.1 pips.

　　

A Trader's Journey

　　Let's walk through a sample trade to see how all these ideas—pips, pip value, and risk management—work together. This shows how theory turns into action.

　　

The Trade Setup

　　Let's say our analysis suggests EUR/USD will rise.

　　The current market price is 1.0820. We decide to buy using one Mini Lot, which is 10,000 units. We know that for a mini lot of EUR/USD, each pip is worth $1.

　　

Setting Our Risk

　　No trade should be made without a clear exit plan for when we're wrong. This is our stop-loss.

　　We decide to risk at most 30 pips on this trade. A 30-pip move against us tells us to cut our losses.

　　We find our stop-loss price: 1.0820 (entry price) - 0.0030 (30 pips) = 1.0790. We place our stop-loss order at 1.0790.

　　If the price drops to this level, our trade will close automatically with a set loss.

　　

Defining Our Goal

　　We also need an exit plan for when we're right. This is our take-profit.

　　We aim for a 60-pip profit, giving us a risk-to-reward ratio of 1:2 (risking 30 pips to make 60).

　　We find our take-profit price: 1.0820 (entry price) + 0.0060 (60 pips) = 1.0880. We place our take-profit order at this price.

　　

The Outcome

　　From here, only two things can happen. The price will reach either our take-profit or our stop-loss.

　　Scenario A: The trade works out. The price rises to 1.0880, and our take-profit order is triggered. We've made a 60-pip gain. Since our pip value was $1, this means a $60 profit.

　　Scenario B: The trade fails. The price falls to 1.0790, and our stop-loss order is triggered. We have a 30-pip loss. This means a $30 loss.

　　This simple example shows how pips are the basics of trade management. They define your entry, your risk, and your reward.

　　

Not All Pips Are Equal

　　While a pip is a standard unit of measurement, it behaves differently across various currency pairs. A pip in EUR/USD is very different from a pip in USD/ZAR.

　　This difference comes from volatility and liquidity. Understanding this helps you pick pairs that match your risk comfort and trading style. Following advice from regulatory bodies like the CFTC on due diligence includes knowing the unique traits of what you're trading.

Pair Type	Example Pair	Typical Daily Pip Movement (Volatility)	Key Consideration for Traders
Major Pairs	EUR/USD, GBP/USD	Lower (e.g., 50-100 pips)	High liquidity, tight spreads, more predictable price action. Ideal for beginners.
Cross Pairs	EUR/JPY, GBP/AUD	Higher (e.g., 100-200 pips)	Increased volatility offers more opportunity but also more risk. Requires careful risk management.
Exotic Pairs	USD/ZAR, USD/MXN	Extremely High (e.g., 500+ pips)	Low liquidity, very wide spreads, and huge price swings. High risk/reward, suitable only for advanced traders.

　　The key point is that managing a 50-pip stop-loss on EUR/USD is very different from managing a 50-pip stop-loss on USD/ZAR, where such a move could happen in minutes.

　　

Mastering the Language

　　Understanding pips is the first and most vital step in learning the language of the forex market. You must know this basic concept.

　　Let's quickly review what we've covered:

• A pip is the smallest standard unit of price change in a currency pair.
• It's usually the 4th decimal place, or the 2nd for JPY pairs.
• Pips are key for measuring profit/loss, calculating the spread, and setting risk orders like stop-losses.
• The money value of a pip depends on the pair, trade size, and your account currency.

　　Now that you can answer 'what is a pip in forex', you've unlocked a core trading concept. You've moved from watching to understanding the rules of the game.

　　The next step is to use this knowledge in your market analysis and trades.