Pip

A pip represents the smallest change in the exchange rate of a currency pair.

In forex trading, currency prices generally fluctuate in small increments, which are expressed in a standardized unit known as pips.

One hundred pips is referred to as a “big figure.”

Pips are typically the smallest unit by which a currency quote can vary.

When trading currencies, pips serve as the fundamental unit of measurement.

Similar to how liquids are measured in “ounces,” currency quotes are measured in “pips.”

Traders frequently use pips to indicate profits or losses.

For instance, a forex trader might say, “I made 90 pips on the trade!” This indicates that the trader earned a profit of 90 pips, with the actual cash value depending on the pip value.

Although a pip is a minor unit of measurement, forex traders often operate with high leverage, meaning that even a single pip movement can result in significant profit or loss.

For example, if the EUR/USD moves from 1.2250 to 1.2251, that change represents ONE pip.

A pip is usually found in the last decimal place of a price quote.

Most currency pairs are quoted to four decimal places, with some exceptions like Japanese yen pairs, which are quoted to two decimal places.

For example, for EUR/USD, it is 0.0001, while for USD/JPY, it is 0.01.

Some forex brokers quote currency pairs beyond the standard “4 and 2” decimal places, extending to “5 and 3” decimal places.

These are known as FRACTIONAL PIPS, or “pipettes.”

There are 10 fractional pips in a whole pip.

For instance, if GBP/USD moves from 1.30542 to 1.30543, that .00001 USD increase is ONE PIPETTE.

Here’s a pip “map” to assist you in learning how to read pips…

What does “pip” stand for?

Some forex trading platforms state that pip stands for “percentage in point,” while others claim it means “price interest point.”

In the context of price movements, pips are utilized in the forex market, whereas points and ticks are used in the futures market.

The value of each pip is influenced by three factors:

• The currency pair being traded.
• The size of the trade.
• The exchange rate.

Considering these factors, even a single pip fluctuation can significantly affect the value of your trade position.

For a $50,000 trade involving the USD/CAD pair, which is closed at 1.3050 after gaining 50 pips, follow these three steps to calculate the profit in U.S. dollars:

1. Determine the number of quote currency (CAD) each pip represents. Multiply the trade amount by 1 pip:
   50,000 x 0.0001 = 5 CAD per pip
2. Calculate the number of base currency (USD) per pip. Divide the number of CAD per pip (from step 1) by the exchange rate to find the number of USD per pip:
   5 ÷ 1.3050 = 3.83 USD per pip
3. Determine the total profit or loss of the trade. Multiply the number of pips gained by the value of each pip in USD (from step 2) to find the total profit/loss for the trade:
   50 (pips gained) x 3.83 = $191.50 USD profit

If you prefer convenience, we have just the tool for you! Our Pip Value Calculator will assist you in determining the value per pip in your account currency, enabling you to manage your risk per trade more effectively.