Definition
A pip is the standard unit for measuring a change in a currency exchange rate. For most currency pairs it is 0.0001, the fourth decimal place; for pairs quoted in Japanese yen it is 0.01.
How it works
Exchange rates for most pairs are quoted to 4 or 5 decimal places, so a pip gives traders a common unit for price changes. If EUR/USD moves from 1.1000 to 1.1001, it has moved 1 pip. Pairs quoted in yen use 2 or 3 decimals, so a yen pair moving from 100.00 to 100.01 has also moved 1 pip. Many platforms show one extra digit, a fractional pip or pipette, worth 1/10 of a pip.
Pip value is the money gained or lost per pip: pip value = pip size × position size, in the quote currency, the second currency of the pair. Positions are often measured in lots: a standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000. On EUR/USD, 1 standard lot gives 0.0001 × 100,000 = $10 per pip. When the account currency differs from the quote currency, the pip value is converted at the current rate, so it changes slightly over time.
Pips describe distance, not money. Stop-loss and take-profit levels in currency trading are often set in pips, and the position size then decides how much those pips are worth. Spreads are also quoted in pips. With leverage, a small number of pips can be a large share of the margin. Outside currency trading the word is used loosely, so it helps to check what a platform means by it.
Example (hypothetical numbers)
Suppose a trader buys 1 standard lot (100,000 euros) of EUR/USD at 1.1000, and the rate rises to 1.1025.
The move is 1.1025 − 1.1000 = 0.0025, which is 25 pips.
Pip value = 0.0001 × 100,000 = $10, so the gain is 25 × $10 = $250 before costs.
With a mini lot of 10,000 units, the same move is worth 25 × $1 = $25.
The pip count shows how far the rate moved; the money gained or lost depends on the position size.
Common mistakes
- Using 0.0001 as the pip size for a yen pair, where it is 0.01.
- Confusing a pipette in the fifth decimal place with a full pip.
- Counting pips without converting them into money using the position size.
Related calculators
This glossary is for education only and is not investment advice. Examples use hypothetical numbers.