What Is a Pip?
You’ve likely heard terms like pips, points, pipettes, and lots tossed around in forex trading. Let’s break down what they mean and how to calculate their values.
A pip (short for “percentage in point”) is the standard unit used to measure the change in value between two currencies.
For example, if EUR/USD moves from 1.1050 to 1.1051, that 0.0001 increase is one pip.
- Most currency pairs are quoted to four decimal places.
- Pairs involving the Japanese yen are quoted to two decimal places.
So:
- For EUR/USD, one pip = 0.0001
- For USD/JPY, one pip = 0.01
What Is a Pipette?
Some brokers quote currency pairs with extra precision, adding a fifth or third decimal place. These are known as fractional pips, pipettes, or points.
A pipette is one-tenth of a pip.
For example, if GBP/USD moves from 1.30542 to 1.30543, that 0.00001 change is one pipette.
How to Calculate Pip Value
Each currency pair has a different pip value based on the exchange rate and trade size.
Let’s use 10,000 units (a mini lot) as an example.
Example 1: USD/CAD = 1.0200
To calculate the pip value:
0.0001 CAD × (1 USD / 1.0200 CAD) = 0.00009804 USD per unit
For 10,000 units:
10,000 × 0.00009804 = ≈ 0.98 USD per pip
Example 2: GBP/JPY = 123.00
JPY pairs use two decimal places, so:
0.01 JPY × (1 GBP / 123.00 JPY) = 0.000813 GBP per unit
For 10,000 units:
10,000 × 0.000813 = ≈ 0.813 GBP per pip
Converting Pip Value to Your Account Currency
To find out how much a pip is worth in your account’s currency, convert the pip value using the relevant exchange rate.
If your account currency is the quote (counter) currency:
Use division.
From the earlier example:
0.813 GBP per pip ÷ (1 GBP / 1.5590 USD) = ≈ 1.27 USD per pip
If your account currency is the base currency:
Use multiplication.
Using the previous USD/CAD example:
Convert 0.98 USD per pip to NZD at an exchange rate of 0.7900:
0.98 × (1 NZD / 0.7900 USD) = ≈ 1.24 NZD per pip
Do You Need to Do the Math Yourself?
Not at all. Most forex brokers calculate pip values automatically. But it’s still helpful to understand how it works.
And if you need help, you can always use our Pip Value Calculator!
Coming Up Next:
In the next lesson, we’ll explore how small pip changes can lead to big results over time.
