Pip in the Forex Market: Meaning, Calculation, and Practical Usage

When you start tracking Forex market movements or analyzing currency prices, you’ll frequently encounter the term “pips.” This article explains what a pip is, how to calculate pip values, and why it is important for your trading.

What is a Pip: Basic Understanding

Pip (Price Interest Point) is a unit of measurement that indicates the smallest change in the value of a currency pair. For most currency pairs, 1 pip equals 0.0001 or one ten-thousandth of the value in percentage terms, which is the fourth decimal place.

When EUR/USD moves from 1.0614 to 1.0615, the price has moved exactly 1 pip.

Some brokers display prices with five decimal places. The fifth decimal place is called a fractional pip, where 1 fractional pip equals 0.1 of a standard pip. For example, at 1.06154, the ‘4’ indicates 0.4 pip or 0.00004.

Exception: JPY Pairs(

Currency pairs involving JPY show a clear difference. For USD/JPY and other yen pairs, 1 pip equals 0.01 instead of 0.0001. This is because the Japanese yen has a lower value, so movements are measured at the second decimal place.

A change from USD/JPY at 126.68 to 126.69 is considered a 1 pip movement.

Many brokers display JPY prices with about 3 decimal places, e.g., 127.936, where the ‘6’ represents 0.2 pip.

How to Calculate Pip Value Step-by-Step

) For USD Accounts###USD Account(

When USD is the primary currency in the account, pip value remains constant and easy to calculate:

When USD is the second currency )pair XXX/USD(:

• Standard Lot )100,000 units(: 1 pip = )- Mini Lot $10 10,000 units(: 1 pip = )- Micro Lot $1 1,000 units(: 1 pip = $0.10
• Nano Lot )100 units(: 1 pip = $0.01

This applies to EUR/USD, GBP/USD, AUD/USD, NZD/USD, and other pairs where USD is the second currency.

When USD is not the second currency )e.g., USD/CAD(:

Divide the above pip value by the current exchange rate. For example, to find the pip value of USD/CAD in a Standard Lot with an exchange rate of 1.35104:

Pip value = )÷ 1.35104 = $7.40

$10 For other currency accounts###

If your account is in CAD and you trade XXX/CAD, the pip value remains fixed in your account currency, similar to USD accounts. For example:

• USD/CAD Standard Lot: CAD$10 per pip
• Mini Lot: CAD$1 per pip

When CAD is not the second currency (e.g., CAD/CHF at 0.75169):

Pip value = CAD$1 ÷ 0.75169 = CAD$1.33 for a Mini Lot

Special case for JPY pairs:

Since the pip size for yen pairs differs, multiply the result by 100. For example, CAD/JPY at 78.872:

Pip value = (CAD$10 ÷ 78.872) × 100 = CAD$12.68 for a Standard Lot

For pairs without your account currency(

If you have a USD account but trade EUR/GBP, use an additional formula:

1. Know which currency “provides” the pip value: always the second currency, in this case )GBP$10
2. For GBP accounts, GBP/any = GBP()Standard Lot$10
3. Convert GBP to USD by dividing by USD/GBP

Example: If USD/GBP is 0.76554:

Pip value = GBP$10 ÷ 0.76554 = USD$13.06

Applying Pip in Real Trading

Example 1: Trading EUR/USD with a Standard Lot

Suppose you buy EUR/USD 1 Standard Lot at 1.1000, and the price rises to 1.1050. You gain 50 pips, which equals 50 × $10 = $500

If the price then drops to 1.0950, you lose 50 pips, or $500 This demonstrates the importance of proper risk management.

Example 2: Trading USD/JPY with a Mini Lot

Selling 1 Mini Lot of USD/JPY at 145.80 and closing at 145.40 yields a profit of 40 pips. For JPY pairs, the pip value of a Mini Lot generally ranges between $0.90 and $1 so the profit is approximately $40

Example 3: Using Pips for Risk Planning

If you want to risk $100 the maximum per trade and trade with a Mini Lot (1 pip = $1), you can risk 100 pips, meaning your stop-loss must be 100 pips away from your entry point.

With a risk-reward ratio of 2:1, the profit target would be 200 pips.

Example 4: Measuring Performance with Pips

Professional traders often use pips to measure the consistency of their strategies instead of just monetary amounts. For example, a trader who makes an average profit of 30 pips per winning trade with a 70% win rate can track their strategy’s performance without considering lot size or changing market conditions.

The Role of Pips in Risk Management

1. Clarity in Planning

Pips provide a tangible and measurable way to set maximum risk per trade. Instead of saying “I’ll exit if the market goes worse,” disciplined traders say, “My Stop-Loss is 30 pips away from entry.” This standard helps create consistent, emotion-free trading plans.

2. A Standard for Comparison

Using pips allows for fair comparison of different trading results. Winning 50 pips in EUR/USD and 50 pips in GBP/JPY may have different impacts on accounts, but both reflect similar market movements. This consistency aids in strategy evaluation and comparing trading styles.

3. Tracking Long-term Consistency

Tracking pips gained or lost helps traders identify trends, improve strategies, and monitor performance over time. Many professional traders set weekly or monthly pip goals, which helps build credibility in their money management.

Calculating Pip Value with Tools

While manual calculation is useful, ready-made pip calculators save time and reduce errors. These programs require only the currency pair, lot size, and account currency, then provide the exact pip value.

Basic formulas are:

• For most currency pairs: Pip value = 0.0001 × trade size
• For JPY pairs: Pip value = 0.01 × trade size ÷ spot rate

Additionally, trading platforms like MT4 and MT5 display pip data automatically, including pip movement, pip value per open position, and profit/loss in pips.

Risk-conscious traders often use position size calculators, which incorporate pip calculations to determine appropriate lot sizes based on account balance, risk percentage, and Stop-Loss distance.

Summary

Pip is an indispensable foundation for Forex and CFD trading. It helps you:

• Measure market movements and risk with a standard unit
• Set Stop-Loss and Take Profit levels precisely
• Manage risk consistently and emotionlessly
• Compare trading results and evaluate strategy performance fairly

Understanding 1 pip equals how many points and how to calculate pip values for different currency pairs is a crucial skill that leads to smarter trading decisions and more effective risk control.