If you’re just starting out in Forex trading, one of the first terms you’ll encounter is the “pip.” Short for “percentage in point,” a pip is a unit of measurement used to express changes in currency prices.

Although it may seem like a small detail, understanding what a pip is — and how it affects your profits and losses — is essential for navigating the Forex market with confidence.

Definition: What Is a Pip?

A pip is typically the smallest price change a currency pair can make, based on market convention. For most major currency pairs, a pip is equal to 0.0001 (or one ten-thousandth) of the quoted price.

For example:

If EUR/USD moves from 1.1000 to 1.1001, that’s a 1 pip movement.

There are exceptions — such as currency pairs involving the Japanese yen (like USD/JPY), where a pip is usually 0.01.

Why Pips Matter in Forex

Pips help traders measure:

Price movements
Spread costs (the difference between bid and ask)
Profit and loss on trades

Example: If you buy EUR/USD at 1.1050 and close the trade at 1.1060, you’ve gained 10 pips.

The actual dollar amount you make or lose depends on your lot size — more on that below.

How Much Is One Pip Worth?

The value of a pip depends on three key factors:

The currency pair
The trade size (lot size)
The exchange rate

Let’s look at an example for a standard lot (100,000 units):

1 pip in EUR/USD = $10
1 pip in USD/JPY = approximately $9.30 (varies with rate)

For smaller positions:

Mini lot (10,000 units): 1 pip ≈ $1
Micro lot (1,000 units): 1 pip ≈ $0.10

What Is a Fractional Pip (Pipette)?

Some brokers quote prices using an extra decimal place — this is known as a pipette. In this case:

EUR/USD might be quoted as 1.10507
The fifth digit (7) represents a pipette — or 1/10 of a pip

This allows for more precise pricing and tighter spreads, especially in scalping and high-frequency trading.

Calculating Pips on Your Own

If your broker or trading platform doesn’t automatically calculate pip values, here’s a general formula:

Pip Value = (1 pip / Exchange Rate) × Lot Size

For example, if trading a standard lot of EUR/USD at 1.1000:

Pip Value = (0.0001 / 1.1000) × 100,000 = $9.09

However, most modern platforms like MetaTrader or cTrader calculate this automatically in real-time.

Using Pips in Your Trading Plan

Once you understand how pips work, you can use them to:

Set stop-loss and take-profit levels
Measure risk/reward ratios
Evaluate trade performance in consistent terms

Pro Tip: Always know how many pips you’re risking vs. how many pips you’re targeting. A common target is a 2:1 or 3:1 reward-to-risk ratio.

Demo Trading With Pip Awareness

If you’re trading on a demo account, pay close attention to pip movement. Try setting goals such as:

Practice identifying 10-pip breakout patterns
Set stop losses based on recent swing highs/lows in pip terms
Test different lot sizes to see how pip value affects equity

Conclusion

Understanding what a pip is — and how it influences trade outcomes — is one of the most basic yet vital pieces of Forex knowledge. Whether you’re trading demo or live, pips are how you measure progress, risk, and profit.

It’s not just about how many pips you win — but how consistent you are at managing them.

Disclaimer: This article is for informational purposes only. It is not intended as investment advice. Always consult with a licensed financial advisor before making trading decisions.