What is a pip?
A pip is the smallest standard move in a currency pair's price. For most pairs it is 0.0001 — the fourth decimal place. So if EUR/USD moves from 1.0850 to 1.0851, it has moved one pip.
Pairs involving the Japanese yen are the exception: the pip is 0.01, the second decimal place, because yen pairs are quoted with fewer decimals. If USD/JPY moves from 150.00 to 150.01, that is one pip.
Some brokers quote prices to a fifth decimal place. That extra digit is a pipette, worth one-tenth of a pip. It lets you see smaller moves, but the pip itself is still the standard unit for measuring profit, loss and risk.
Pips are the common language of forex. Traders talk about stop losses of 20 pips or targets of 50 pips, because pips describe the size of a move without depending on the price level of the pair.
- One pip is 0.0001 for most pairs and 0.01 for JPY pairs.
- A pipette is one-tenth of a pip.
- Pips measure the size of a move, not its dollar value.
The pip value formula
The value of one pip depends on the pair, the lot size and the exchange rate. The formula is: pip value = (pip size ÷ exchange rate) × lot size, and the result is in the quote currency — the second currency in the pair.
For a pair quoted in US dollars, the maths is simple. Take EUR/USD: the pip size is 0.0001, and one standard lot is 100,000 units, so one pip is worth 0.0001 × 100,000 = $10. The exchange rate does not change the answer here, because the quote currency is already dollars.
The same formula works for other lot sizes. A mini lot of 10,000 units gives a pip value of $1 on EUR/USD, and a micro lot of 1,000 units gives $0.10. The pip value scales directly with the lot size — double the lot, double the pip value.
When the quote currency is not dollars, divide by the exchange rate first. For USD/JPY, one standard lot gives a pip value of 0.01 × 100,000 = 1,000 yen per pip. Convert that into dollars at the current USD/JPY rate to get the dollar value.
- Pip value = (pip size ÷ exchange rate) × lot size, in the quote currency.
- EUR/USD, 1 standard lot: $10 per pip; mini lot: $1; micro lot: $0.10.
- For non-dollar quote currencies, convert the result into your account currency.
Lot sizes and what they change
Lot size is the number of currency units in one trade, and it decides how much each pip is worth. A standard lot is 100,000 units, a mini lot is 10,000 units, and a micro lot is 1,000 units. Some brokers also offer nano lots of 100 units.
The pip value scales exactly with the lot size. On EUR/USD, moving from a micro lot to a mini lot multiplies the pip value by ten, from $0.10 to $1 — and the same tenfold jump applies to any loss per pip.
Lot size is therefore a risk control, not just a trade size. A 20-pip loss on one standard lot of EUR/USD costs $200, while the same 20-pip move on one micro lot costs $2. The price moved the same distance in both cases; only the lot size changed the outcome.
Choose the lot size after you know your risk, not before. Work out how many dollars you are willing to lose, divide by the stop-loss distance in pips and the pip value, and the lot size follows from that.
- Standard lot: 100,000 units. Mini lot: 10,000. Micro lot: 1,000.
- Pip value scales directly with lot size.
- A 20-pip loss costs $200 on a standard lot and $2 on a micro lot of EUR/USD.
When the pip value is not in dollars
Pip value is first calculated in the quote currency — the second currency of the pair. When that currency is the US dollar, the answer is already in dollars. When it is not, you need one more step.
Take USD/JPY as an example. The pip is 0.01, and one standard lot gives 1,000 yen per pip. To know what that is worth in dollars, divide by the current USD/JPY rate. At a rate of 150.00, 1,000 yen is about $6.67 per pip.
The same applies to pairs such as EUR/GBP or AUD/CAD, where neither currency is the dollar. The pip value comes out in pounds or Canadian dollars, and converting it into your account currency needs the relevant exchange rate at the time of the trade.
If your account is not in dollars, the same conversion applies in reverse. Your broker converts the result into your account currency, and the converted value moves slightly as exchange rates move. A pip value calculator handles this by taking the pair, the lot size and the current rate together.
The bottom line
Pip value tells you what each pip of movement is worth in money. It does not tell you which way the price will move, and it cannot make a trade profitable on its own.
Use it before you trade: work out the pip value for your pair and lot size, multiply it by your stop-loss distance, and you know the most the trade should cost you. If that number is more than you planned to risk, use a smaller lot.
Forex is usually traded with leverage, which means small price moves can produce large gains or losses relative to the money you put up. Knowing the pip value is the first step in keeping that risk under control.
