Forex Pip

What Is a Pip?


A point in Forex trading is referred to as a "pip". It is the last decimal place of a price quote.
Currency pairs are usually traded in standard Lots, which are equivalent to 100,000 units of the top currency in a pair.


For example, 1 Lot of GBP/USD is eqivalant to 100,000 pounds. Standard lots can be traded in “mini” versions (0.1) and are equivalent to 10,000 units of the top currency pair.
Since the currency that is on the top of the price quote changes, i.e. 1 Lot of GBP/USD (100,000 Pounds) is worth more than 1 Lot of USD/CAD (100,000 Dollars), the value of a pip changes. Also, the size of a position will affect how much each pip is worth.
If you are new to forex trading and decided to learn forex one of the first forex term you will come across is the forex pip. To learn how t forex trade successfully you need to understand these terms.


What s Forex Pip?


The acronym PIP stands for Percentage In Point or Price Interest Point. In forex trading your profits and losses are measured in forex pips. Obviously it is very essential to understand what is a forex pip.

In simple terms a PIP is the smallest value (price) increment a currency can make. Forex PIP allows us to determine a rise or fall in foreign exchange values in percentage terms as an alternative of measuring in dollars and cents. Forex spreads are also measured in pips. Forex spread is the difference between the bid price and ask price (the sell quote and the buy quote) which is the major cost of currency trading. Let’s see an example to get a clear understanding. Assume that the EUR/USD quotes read 1.3300/02. In this case, the spread is the difference between 1.3300 and 1.3202, or 2 pips.


A pip is the smallest price increment in forex trading – pip stands for percentage in point.
Prices are quoted to the fourth decimal point in the forex market – for example EUR/USD might be bid at 1.1914 and offered at 1.1917. In this example we can see that the spread is 3 pips wide. The Japanese Yen (JPY) is an exception – it is quoted only to the second decimal point.







Why do we have to to measure in pips?

We use PIP in forex trading because in the currency trading market there is no universal currency in which you can indicate the foreign exchange values. Despite the fact that US dollar is the most widely traded currency, the USD is not involved in all trades. Fore instance if you are trading in two foreign currencies such as EUR/GBP or any other that does not involve USD, it would not make any sense to measure your profitss and losses in terms of US dollars. Hence traders make use of forex PIP which is a small percentage of the rate of the forex currencies involved in the trade. In other words the monetary value of a forex pip changes according to the currency involved in trade.


Almost all the major forex currencies are quoted to four decimal points with the exception of Japanese Yen. For instance if the bid price for EUR/USD quoted at 1.3641 and ask price at 1.3645, then the spread (the difference between bid and ask prices) is 0.0004 or 4 pips. In terms of percentage, a pip is 0.01% of a lot. Therefore if the lot size is $100,000, one pip would be worth $10. Please note that, this is the value of pips when the US dollar is used as the quote currency. Nevertheless if the quote currency is different (example GBP), one pip is 10 units of that currency (ie 10 pounds) assuming that your lot size is 100,000.


Japanese Yen is an exception since it has a much lower unit value than most of the other major forex currencies. Due to this, the Japanese Yen is quoted to the second decimal point in forex markets. So if the USD/JPY forex rate is 110.18 then one pip is 0.01 or 1% in yen, not dollars. Accordingly the pip value is JPY 1000 which at that price would be worth US $11.015. Are still with me? I know these figures can be confusing especially for beginners.


Just remember that, in case of EUR/USD 1 pip = 0.0001 and for USD/JPY I pip=0.01.
As I always advice, it is better to trade in one forex pair, preferably in EUR/USD when you are a beginner. When you are doing currency trading in one forex pair repeatedly on a daily basis you will quickly get a clear idea of how much a pip represents in terms of your actual gains and losses. After some time you will know how much one pip is worth in dollars by taking a quick glance at your forex account.


On the other hand if you are trading in a number of dissimilar currency pairs, you are dealing with pips of different value. This will not only you get confused, you could end up losing money. Hence I recommend you to stick with the EURO/USD currency pair until you have a clear understanding of forex pip values and trends even if you are using a forex software



The acronym "PIP" or rather pip which stands for "percentage in point" refers to the smallest measure for price movements in the Forex market. Since currency prices in Forex market are quoted in fractions, pip is the smallest decimal place that you could find in the price quotes.

We can generally divide currency pairs two groups. The first group do not include Japanese Yen. This group contains 4 decimal places. For example if the price Eure versus US Dollar is quoted 1.4523 and the price moves to 1.4524 then price has changed by 1 pip. The easy way to make calculations is to ignore the whole number and deduct the decimal sections (i.e. 4524-4523=1pip).

The second group consists of Yen as part of the quote for example US Dollar versus Japanese Yen versus. In this group the number of decimal places is limited to 2. For example if the price of USD/JPY changes from 117.12 to 117.13 then the price has risen by 1 pip. I suggest to make calculations by ignoring the decimal place (i.e. 11713-11712=1 pip).



When you are first getting started with trading currency and forex you may be intimidated by the amount of new terminology that you have to learn before you can fully comprehend and analyze particular markets and make smart decisions. One of the terms that most novice traders continuously hear about yet have difficulty interpreting is the forex pip, and how forex pips fit into the big picture while trading forex. The truth is that a forex pip isn’t really that difficult to understand, and the basic concept behind a forex pip is very simple.

Forex pips are essentially the smallest unit of measurement that a particular currency can be measured in. Pip stands for “percentage in point”, and the best way to understand what a forex pip is by looking at an example. The majority currency pairs display a pip that is at 0.0001—so for instance if you just traded EUR/USD at 2.8679 and it sold at 2.869 you just made eleven pips. It is pretty much that simple and while the term pip may not make sense at first, once you start trading currency pairs the terms pip and pips are going to become second nature to you. Forex trading pips are extremely important when trading currency because without them it would be very difficult to measure the differences in the value of currency.





Forex pips can also provide you with the value of any currency pair if you know how to perform the appropriate calculation. The formula is actually really simple as long as you know the base currency, the exchange rate, and the pip value. If for example you are trading USD/AUD then the pip value would be at 0.0001 with an exchange rate that might be at 1.3454. To get the real value of the pip you simply divide 0.0001 by the exchange rate to get what the value of the pip is. You are going to get a very small number and you shouldn’t worry as this is to be expected and you should always remember that the actual number isn’t of any real consequence, and it is rather the fluctuations and overall volume of trades that will make you money in forex.

Once you have a firm grasp on what a forex pip is then you can confidently analyze the value of currency pairs so that you can make better decisions going forward. Various brokerages will advertise that they can offer you forex 2 pips in an effort to get you in the door. These brokerages may be able to deliver on such promises but in all likelihood you are going to have to personally ensure the provision of such a spread. Getting even a forex 1 pip spread can be difficult, and the only way to really make more money and avoid scalping forex pips is to analyze your positions correctly without getting trapped into any one strategy that may not be yielding a significant return. This way you can establish the appropriate pip spread without using up too much of your bankroll too soon and without becoming subject to a forex margin call. Once you start working with pips on a regular basis you should be able to better analyze all sorts of forex data on a much higher level, and this will hopefully make you more money in the long run.