What is a Pip? Pips Explained for Australian Traders

A pip is the smallest standard price movement used to measure changes in a currency pair’s exchange rate. Most Australian CFD and forex brokers quote prices to four decimal places, so a single pip is typically a move of 0.0001 in pairs like AUD/USD.

How a Pip Works — A Practical Example

Say you open a trade on AUD/USD at 0.6500 and the price moves to 0.6525. That’s a move of 25 pips. To figure out the dollar value of those pips, you need to know your position size.

If you’re trading 1 standard lot (100,000 units of AUD), each pip on AUD/USD is worth roughly A$10 — so a 25-pip move in your favour earns you A$250. If the price moves against you by 25 pips, you lose A$250. This is why understanding pip value is essential before placing any trade.

For pairs that include the Japanese yen, such as AUD/JPY, a pip is quoted to two decimal places (0.01) rather than four. Brokers also commonly display fractional pips (sometimes called pipettes), which represent one-tenth of a pip, giving you a fifth decimal place for tighter pricing.

You can work out exactly what each pip is worth in your account currency using a pip calculator — especially useful when trading exotic pairs or non-AUD assets like gold or oil.

Why Pips Matter for Australian Traders

Pips are the universal language brokers use to quote spreads — the difference between the buy and sell price. If a broker advertises a 1.2-pip spread on AUD/USD, that spread is your immediate cost the moment you enter the trade. Over hundreds of trades, even half a pip difference per trade adds up to a significant cost.

ASIC-licensed brokers are required to present pricing clearly and honestly under their Australian Financial Services Licence (AFSL) obligations. This means the pip-based spreads they advertise should reflect real trading conditions, not just figures shown during low-volatility hours. Always check whether a broker’s advertised spreads are typical or minimum — the difference can be several pips during news events.

Because leverage amplifies both gains and losses, even a small pip movement can have an outsized impact on your account. ASIC caps leverage at 30:1 for major forex pairs for retail clients — but at that ratio, a 30-pip move against a 1-lot position still results in a A$300 loss. Keeping a close eye on pip value relative to your account balance is a core part of managing risk.

Pip vs Spread — What’s the Difference?

A pip is a unit of price measurement, while a spread is the number of pips between the bid and ask price offered by your broker. Think of the pip as a ruler, and the spread as a measurement taken with that ruler. A tight spread of 0.8 pips on AUD/USD is better for the trader than a wide spread of 2.5 pips because you start each trade closer to breakeven. For most Australian traders, the spread — measured in pips — is the more important factor to check when comparing brokers.

What to Check When Comparing Brokers

• Typical vs minimum spreads: Some brokers advertise their lowest-ever spread. Ask for the average spread during normal trading hours, not just the best-case figure.
• Spread on your target market: A broker with a 0.8-pip spread on EUR/USD may charge 3 pips on AUD/USD. Always check the specific pair or asset you plan to trade.
• Raw vs standard accounts: Brokers like IC Markets offer raw spread accounts from 0.0 pips plus a small commission — this can be cheaper than a standard account for active traders.
• Pip value in AUD: If your account is denominated in AUD, confirm how the broker converts pip values on USD-quoted pairs. Small rounding differences can affect your P&L over time.
• Fractional pip pricing: Brokers offering five-decimal pricing (pipettes) give you more precise entry and exit points, which matters when trading tight ranges.

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