In forex trading, one of the first terms every trader must understand is the pip. A pip measures the smallest price movement in a currency pair and plays a central role in calculating profits, losses, and risks. Whether you are trading EUR/USD, GBP/JPY, or exotic pairs, pips are the common language of measurement.
Knowing how to calculate pip values, how pipettes (points) add more precision, and how digits on price quotes matter is critical for building a trading strategy. According to OANDA Education, traders who understand pips are better equipped to manage spreads, lot sizes, and leverage effectively.
This article explains pips in detail, including their definition, calculation, and role in forex trading, along with practical tables and examples.
A pip (short for percentage in point or price interest point) is the standard unit of measurement for currency pair movements.
Pips are universal across brokers, making it easy for traders worldwide to discuss trade size, profits, and risks.
A digit refers to each decimal place in a forex quote. For most pairs, brokers use 4-digit or 5-digit pricing.
Thus, digits matter: the 4th digit = pip, the 5th digit = pipette (point). For JPY pairs, the 2nd digit = pip, the 3rd digit = pipette.
A pipette (sometimes called a point) is 1/10th of a pip. It provides greater precision in quoting prices.
| Pair | Pip Value | Pipette Value | Example Move |
| EUR/USD | 0.0001 | 0.00001 | 1.10501 → 1.10511 = 1 pip |
| USD/JPY | 0.01 | 0.001 | 150.000 → 150.010 = 1 pip |
According to Fastpip Glossary, pipettes improve trade execution accuracy and reduce spreads for scalpers.
The formula is straightforward:
Pip Value = (One Pip ÷ Exchange Rate) × Lot Size
Pip Value = (0.0001 ÷ 1.1000) × 100,000 = $9.09
Pip Value = (0.01 ÷ 150.00) × 100,000 = $6.67
Lot size determines how much money each pip movement represents.
| Lot Type | Units of Base Currency | Pip Value (EUR/USD ~ 1.10) |
| Standard Lot | 100,000 | ~$10 per pip |
| Mini Lot | 10,000 | ~$1 per pip |
| Micro Lot | 1,000 | ~$0.10 per pip |
Thus, a trader controlling one standard lot in EUR/USD gains or loses ~$10 per pip.
Spread is the difference between the bid and ask price, usually measured in pips.
Scalpers often rely on pipettes to minimise spread costs.
Pips are essential in defining risk and reward.
According to the CFTC Education Centre (CFTC.gov), effective risk management starts with sizing trades so that potential pip losses align with your account balance and risk tolerance.
A trader buys 1 standard lot EUR/USD at 1.1000.
If the trade had gone down 50 pips, the loss would also be $500. This highlights why pip understanding is vital.
Pips are the universal language of forex trading. They measure price changes, define trading costs, and determine profits or losses. By mastering pip calculations, pipettes, and their relation to lot sizes, spreads, and leverage, traders gain the tools needed for smarter decisions.
Understanding pips is not just theory—it’s the foundation for risk management and consistent performance in forex markets.
Forex Trading / Measurement
Before placing a trade, always calculate the pip value for your lot size. This ensures you know exactly how much you risk per pip. Tools from Fastpip help automate pip calculations and align your stop losses with sound risk management rules.
