What is a Pip in Forex Trading?

Updated Nov 02 2021

What is a Pip in Forex Trading? - Definition & Examples

A Pip is the smallest price measurement change in forex trading. In most currency pairs one Pip equals a movement in the fourth decimal place (0.0001) with the exception of the JPY where a pip equals a movement in the second decimal place (0.01).

Pip Explanation 1

Pip is an abbreviation for “percentage in point”.

The reason for traders calling it “percentage in point” is that a Pip is equivalent to 1/100 of 1% (1% of 1%).

Pip Explanation 2

To clarify this concept a little bit more, all we need to do is understand that 1% can also be written as 0.01, in fact, if you wanted to know how much is 1% of $2.000 you can do so by multiplying $2.000 times 0.01, the result will be $20.

Now that we understand the concept of 1%, we can follow with obtaining the result of 1/100 of 1% (same as 1% of 1%). To do so, we can simply multiply 0.01 times 0.01, the result is 0.0001 and that is exactly what 1 “percentage point” represents (also known as Basis point).

As mentioned above we know that a Pip can be either 0.0001 for most currencies or 0.01 in the case of JPY pairs, yet there are some brokers that will instead show 5 decimal positions for most currencies and 3 for JPY pairs and here comes into play the “pipette”.

What is a Pipette (Fractional Pip)?

A pipette is simply 1/10 of a Pip which equals the 5th decimal position for most currency pairs or the 3rd decimal position for pairs that involve the JPY.

Pipette Explained

To arrive at the correct result simply divide 1 by 10 and multiply it by 1 Pip (0.0001), the result is 0.00001.

Examples of using Pips in Forex

Case 1: EUR/USD - 4 Decimals

In most currency pairs such as EUR/USD or USD/GBP, a pip equals a movement of 0.0001 (fourth decimal position).

EUR/USD 4 Decimals Pip Change Example

To find out how many pips your currency pair changed, simply subtract one price from the other (1.1278 - 1.1243) and in this particular case the result is 35 Pips.

Case 2: EUR/USD - 5 Decimals

In the case of Brokers that quote most of their currency pairs with 5 decimals, we learned that 0.00001 is called a “Pipette” or 1/10th of a Pip (or 0.1 Pip as well).

EUR/USD 5 Decimals Pip Change Example

To find out the result of how many pips your currency pair changed, subtract both numbers (1.12703 - 1.12704), the result will be 0.00001 (which equals 0.1 Pips).

Case 3: USD/JPY - 2 Decimals

In most pairs involving the JPY, a pip equals a movement of 0.01 (second decimal position).

USD/JPY 2 Decimals Pip Change Example

To find out the result of how many pips your currency pair changed, subtract both prices (110.22 - 113.22), the result will be 3. In order to arrive at the conclusion that our result equals 300 pips, we need to ask ourselves the following: if 1 Pip equals 0.01 then how many pips is required to arrive at the result of 3?

  1. To verify that in the beginning of your calculation simply take your result “3” and divide it by one Pip’s value (0.01), the result will be 300.

Case 4: USD/JPY - 3 Decimals

In the case of brokers that chose to quote JPY pairs with 3 decimals, we learned that the third decimal position is called a “Pipette” which equals to 1/10th of a Pip (or 0.1 Pips as well).

USD/JPY 3 Decimals Pip Change Example

To find out the result of how many pips your currency pair changed, subtract both prices (109.223 - 109.229), the result is 0.6 Pips.

Calculating Pip Value

Now that we understand the basics of how to work with Pips and Pipettes, we can get into calculating their value, which means to understand how much is each Pip worth (in terms of money) in relation to the size of your trade.

A good example of this is asking yourself the question: do every time my open trade changes 1 Pip, how much am I profiting or losing $1, $10, $100?

Let's get started with the formula to arrive at this result:

Pip Value Formula Basics

The above formula is very simple, let’s study it’s components:

One of the most important points to remember about this formula is that the result will always be expressed in terms of the base currency (the first one in your pair).

So if you wish to change it to another currency all you need to do is a simple conversion.

Examples of Calculating Pip Value

In this example we’ll use both EUR/USD and USD/JPY prices.

Executing the below formulas is fairly easy, proceed as follows:

Pip Value Examples

Notice how in the first example, the result is expressed in Euros and then converted to Dollars, that happens because the formula always produces the result in terms of the base currency (the first one in your pair) and that’s why if you wish to see it in another currency you must convert it manually.  

Conclusion

Now that we learned that a Pip is simply a small measurement change in currency prices, we need to understand the logic behind all of this.

Read the below sentences:

Which one sounds easier for you?

We’re assuming that number 2 won the battle!

Pips help in efficiently communicating currency price changes and determining the potential profit and losses when transacting currencies in the forex market.

If right now there are 10 forex traders discussing their daily performance, it’s very easy for them to say: I made 50 pips today! Instead of saying specific amounts or details of value, prices, etc.

Hope you enjoyed our Pip guide.

Good luck!

Author

Stefano Treviso

Top Online Brokers

1

Capital.com

75.26% of retail CFD accounts lose money. Trading on margin is high risk and is not suitable for everyone.

2

eToro

68% of retail CFD accounts lose money

3

Pepperstone

74-89% of retail CFD accounts lose money

Best Online Brokers

75.26% of retail CFD accounts lose money. Trading on margin is high risk and is not suitable for everyone.

Available Assets

Stocks
Currencies
Cryptocurrencies
Commodities
ETFs
CFDs
Indices

Minimum Deposit

$, €, £ - 20

Regulators

Cyprus Securities and Exchange Commission
Financial Conduct Authority
Australian Securities and Investments Commission
National Bank of the Republic of Belarus

Payment Methods

Visa
Mastercard
Bank Transfer
Sofort
Neteller
Paypal
Apple Pay
Skrill
iDeal

Top Features

  • Customisable leverage for each asset class
  • Integrated with TradingView platform
  • User friendly web and mobile platform

68% of retail CFD accounts lose money

Available Assets

Stocks
Cryptos
Commodities
Currencies
ETFs
Indices
CFDs

Minimum Deposit

$50 up to 200

Regulators

Cyprus Securities and Exchange Commission
Financial Conduct Authority
Australian Securities and Investments Commission
Financial Services Authority Seychelles

Payment Methods

Visa
Mastercard
Bank Transfer
Sofort
Neteller
Paypal
Skrill

Top Features

  • Buy real shares without leverage
  • Social and copy trading platform
  • More than 12 million users

74-89% of retail CFD accounts lose money

Available Assets

Stocks
Cryptos
Commodities
Currencies
ETFs
Indices
CFDs

Minimum Deposit

$200

Regulators

BaFin (German Federal Financial Supervisory Authority)
Financial Conduct Authority
Australian Securities and Investments Commission
ADGM Financial Services Regulatory Authority
Cyprus Securities and Exchange Commission
Securities Commission of the Bahamas
Capital Markets Authority of Kenya

Payment Methods

Visa
Mastercard
Bank Transfer
Neteller
Paypal
Skrill

Top Features

  • Well regulated on several jurisdictions
  • Low latency, fast execution under 30ms
  • Competitive spreads and low commissions from 0.0 pips their Razor account

72% of retail CFD accounts lose money

Available Assets

Stocks
Currencies
Cryptos
Commodities
ETFs
CFDs
Indices
Options

Minimum Deposit

$, €, £ - 100

Regulators

Cyprus Securities and Exchange Commission
Monetary Authority of Singapore
Financial Conduct Authority
Australian Securities and Investments Commission

Payment Methods

Visa
Mastercard
Bank Transfer
Paypal
Skrill

Top Features

  • Publicly traded company on LSE
  • CFDs on American Options offered
  • Easy to access live chat support

77% of retail CFD accounts lose money

Available Assets

Stocks
Cryptos
Commodities
Currencies
ETFs
Indices
CFDs

Minimum Deposit

$, €, £ - 0

Regulators

Cyprus Securities and Exchange Commission
Financial Conduct Authority
Polish Financial Supervision Authority
National Securities Market Commission (Spain)

Payment Methods

Visa
Mastercard
Bank Transfer
Sofort
Neteller
Paypal
Skrill

Top Features

  • Low Forex Spreads
  • Advanced platform with customisable spaces
  • Publicly traded company in WSE

Your Capital is at risk

Available Assets

Stocks
Currencies
Commodities
Indices
Cryptos
CFDs

Minimum Deposit

$100

Regulators

Australian Securities and Investments Commission
Securities Commission of the Bahamas

Payment Methods

Visa
Mastercard
Bank Transfer
Neteller
Paypal
Skrill
DragonPay
USDT (Tether)

Top Features

  • Allows deposits with cryptocurrency USDT (Tether)
  • Up to 1:500 leverage for experienced traders
  • Free Forex VPS (Virtual private server) to run your MetaTrader setup

74-89% of retail CFD accounts lose money

Available Assets

Currencies
Commodities
Indices
Cryptos
CFDs

Minimum Deposit

$, €, £, - 0.

Regulators

Financial Conduct Authority
Australian Securities and Investments Commission
Monetary Authority of Singapore
Investment Industry Regulatory Organization of Canada
Financial Futures Association of Japan

Payment Methods

Visa
Mastercard
Bank Transfer
Paypal

Top Features

  • High trustworthiness, regulated by the best regulators in the world
  • Fast, simple and professional trading platforms
  • Competitive spreads in their currency pairs

73.59% of retail CFD accounts lose money

Available Assets

Stocks
Cryptos
Commodities
Currencies
Indices
CFDs

Minimum Deposit

$200

Regulators

Cyprus Securities and Exchange Commission
Australian Securities and Investments Commission
Financial Services Authority Seychelles

Payment Methods

Visa
Mastercard
Bank Transfer
Bitcoin
Sofort
Neteller
Paypal
Skrill

Top Features

  • Customisable leverage per asset before opening trades
  • Interbank rates and low commissions
  • Great platform variety

Spread the love by sharing our content!

Feel like reading more?

5 Best UK Forex Brokers List for 2021

IC Markets Review 2021 - The Good and the Bad

Pepperstone Review 2021 - The Good and the Bad

Oanda Review 2021 - The Good and the Bad

Blueberry Markets Review 2021 - The Good and the Bad

A Beginners Guide to Dollar-Cost Averaging (DCA) with Examples

Monero (XMR) - Your Money Finally Belongs to You

How to Buy Stocks - A Beginners Step-by-Step Guide

XTB Broker Review 2021 - The Good and the Bad

Initial Coin Offering (ICO) - A Guide for Investors and Traders

By using TheTradingBible.com's website you agree to the use of cookies.

Start Trading

75.26% of retail CFD accounts lose money. Trading on margin is high risk and is not suitable for everyone.