If you’re new to forex trading, you’ll hear the word “pip” thrown around constantly. It can feel like everyone knows what it means except you.
Don’t stress. It’s actually a simple concept once someone explains it properly.
What Is a Pip? (The Simple Version)
A pip is the smallest standard price move in a currency pair.
Most currency pairs are quoted to four decimal places. A pip is the movement in that fourth decimal place.
For example:
- EUR/USD moves from 1.1050 to 1.1051 — that’s 1 pip
- EUR/USD moves from 1.1050 to 1.1150 — that’s 100 pips
Simple as that.
The one exception is pairs involving the Japanese yen (JPY). Those are quoted to two decimal places, so a pip is the second decimal.
- USD/JPY moves from 145.20 to 145.21 — that’s 1 pip
Where Does the Word ‘Pip’ Come From?
Two competing explanations exist, and honestly, neither is confirmed.
Version 1: Pip stands for Percentage in Point — describing how the price changes as a percentage of a unit.
Version 2: Pip stands for Price Interest Point — a term from older trading conventions.
The truth? Most traders don’t care. What matters is knowing how to use it, not where the word came from.
How to Calculate Pip Value — With Real Examples
Knowing what a pip is and knowing what it’s worth are two different things.
Pip value depends on three things:
- The currency pair you’re trading
- Your position size (lot size)
- The current exchange rate
Standard formula:
Pip Value = (0.0001 / Exchange Rate) × Lot Size
Example 1 — EUR/USD:
- Exchange rate: 1.1050
- Lot size: 100,000 (standard lot)
- Pip value = (0.0001 / 1.1050) × 100,000 = ~$9.05 per pip
Example 2 — USD/JPY:
- Exchange rate: 145.20
- Lot size: 100,000
- Pip value = (0.01 / 145.20) × 100,000 = ~$6.88 per pip
If you’re trading a mini lot (10,000 units), divide those numbers by 10. If you’re on a micro lot (1,000 units), divide by 100.
Most brokers calculate this automatically — but it’s worth understanding the maths behind it.
Pips vs Points vs Pipettes: What’s the Difference?
These three terms trip up a lot of beginners.
| Term | What It Means |
|---|---|
| Pip | Standard unit — 4th decimal place (or 2nd for JPY) |
| Point | Sometimes used interchangeably with pip; can also mean 1/10th of a pip depending on the broker |
| Pipette | 1/10th of a pip — the 5th decimal place |
Some brokers quote prices to 5 decimal places. That extra digit is a pipette.
- EUR/USD at 1.10505 — the “5” at the end is a pipette
- 10 pipettes = 1 pip
When your broker shows you a price like 1.10505, the pip movement is still tracked in the fourth decimal (the “0”), not the fifth.
How Pips Affect Your Profit and Loss
Here’s where it gets real.
Imagine you buy EUR/USD at 1.1050 and sell at 1.1080. That’s 30 pips in your favour.
If you’re trading a standard lot and each pip is worth ~$9:
30 pips × $9 = $270 profit
Now flip it. You buy at 1.1050 and price drops to 1.1020. That’s 30 pips against you.
30 pips × $9 = $270 loss
This is why pip value matters before you enter a trade. Knowing your pip value helps you set sensible stop-losses and calculate your risk per trade.
A solid rule used by many professional traders: never risk more than 1-2% of your account on a single trade.
A Real Trade Walkthrough: Counting Pips in Action
Let’s say you’re watching GBP/USD and spot a setup.
- You enter at 1.2700
- You set a stop-loss at 1.2670 (30 pips below)
- You set a take-profit at 1.2760 (60 pips above)
This gives you a 2:1 reward-to-risk ratio — for every pip you risk, you’re aiming for two.
The trade plays out. Price hits 1.2760.
You made 60 pips. On a mini lot (10,000 units), with a pip value of roughly $1:
60 pips × $1 = $60 profit
Not massive. But with a standard lot, that’s $600. And if you had three positions running, $1,800.
Pips scale with position size. That’s the whole game.
Common Mistakes Beginners Make With Pips
A few things to watch out for:
1. Confusing pips with dollars A 50-pip move means different dollar amounts depending on your lot size. Always check pip value before trading.
2. Ignoring the spread Your broker charges a spread — the difference between the buy and sell price, measured in pips. A 2-pip spread means you’re already 2 pips down the moment you open a trade. Factor this in.
3. Not accounting for JPY pairs Forget that yen pairs work differently and your pip calculations will be off. Always double-check.
4. Using the wrong lot size A beginner trading standard lots when they meant micro lots can lose 100× more than expected. Know your lot sizes cold.
Quick Reference: Pip Values for Major Currency Pairs
Based on a standard lot (100,000 units) and approximate exchange rates as of mid-2025:
| Currency Pair | Approx. Pip Value (USD) |
|---|---|
| EUR/USD | ~$10.00 |
| GBP/USD | ~$10.00 |
| AUD/USD | ~$10.00 |
| USD/JPY | ~$6.90 |
| USD/CHF | ~$11.20 |
| USD/CAD | ~$7.50 |
| NZD/USD | ~$10.00 |
Note: USD/XXX pairs where USD is the quote currency (like EUR/USD, GBP/USD) almost always have a pip value of exactly $10 per standard lot. It’s the USD/XXX pairs where things get a bit different.
FAQ
How many pips is a good trade?
There’s no universal answer — it depends entirely on your strategy and risk management. A scalper might target 5–10 pips per trade. A swing trader might aim for 100–300 pips. What matters more is your reward-to-risk ratio, not the raw pip count.
Can you make money from just a few pips?
Yes, absolutely. High-frequency traders and scalpers do it constantly. A 5-pip gain on a standard lot is about $50. Do that 10 times a day and it adds up. The key is keeping your losses smaller than your wins.
What is a pip worth in Australian dollars?
If you’re trading AUD/USD, the pip value is quoted in USD. To convert to AUD, divide by the current AUD/USD exchange rate. For example, if AUD/USD is at 0.6500, a $10 pip value equals approximately A$15.38. Most platforms will show you the converted amount automatically if your account is in AUD.
Why do some brokers show 5 decimal places?
Those extra digits are pipettes (fractional pips). Brokers use them to offer tighter spreads — for example, a 1.2-pip spread instead of rounding to 1 or 2 pips. For most beginner purposes, you can ignore the fifth decimal and focus on the fourth.