06. What is Pip in Forex Trading?

A pip in forex is the standard unit used to measure price movement in a currency pair. The term pip stands for “percentage in point”, a convention that dates back to the early days of currency trading when markets needed a simple, universal way to describe small price changes. In most forex pairs, a pip represents a movement of 0.0001 in price, or the fourth decimal place. For example, if EUR/USD moves from 1.1000 to 1.1001, that change equals one pip.

Understanding the pip definition is foundational because every calculation in forex trading—profit, loss, risk, and performance—ultimately traces back to pip movement. Without pips, comparing trades or strategies would be chaotic and inconsistent.

Why Pips Matter in Forex Trading?

Pips matter because they translate raw price movement into something traders can actually use. At a practical level, pips allow traders to measure market movement, compare trades across different currency pairs, and quantify performance over time.

The importance of pips in forex becomes even clearer when calculating profit and loss. Each pip has a monetary value that depends on the trade’s position size and the currency pair being traded. A 20-pip gain on a small position may mean a modest profit, while the same 20 pips on a larger position could represent a significant return. This is why traders focus not just on direction, but on pip movement itself.

Pip and Pipette — What’s the Difference?

In modern forex trading, you will often see prices quoted with an extra decimal place. This is where the concept of a pipette comes in. A pipette is a fractional pip, equal to one-tenth of a pip. If a standard pip is 0.0001, then a pipette is 0.00001.

Many brokers now quote prices to five decimal places (or three for JPY pairs) to provide greater pricing precision. For example, if EUR/USD moves from 1.10005 to 1.10015, that is a move of 1 pip, or 10 pipettes. This added granularity helps traders see smaller market fluctuations, which is especially useful for scalpers and short-term traders.

The pip vs pipette concept exists to provide greater pricing precision. While pipettes help brokers offer tighter spreads and more accurate execution, most traders still calculate profits and losses in full pips rather than pipettes.

How to Calculate Pips in Forex?

To calculate the value of a pip, you need the pip size, the trade size (units or lots), and the account currency. Once you have these, you can find out how much each pip is worth, which helps you manage your risk and plan your trades.

Example :

• Pair: EUR/USD
• Lot Size: 1 standard lot = 100,000 units
• Entry Price: 1.2000
• Exit Price: 1.2055
• Account Currency: USD

Step 1:

Calculate the Number of Pips:
Number of pips = (Exit Price – Entry Price) ÷ Pip Size
Number of Pips = (1.1250 − 1.1200) ÷ 0.0001 = 50 pips

Step 2:

Determine the Pip Value:
For 1 Standard Lot in EUR/USD, 1 pip = $10

Step 3:

Calculate Profit:
Profit = Number of Pips × Pip Value
Profit = 50 pips × $10 = $500

Free Pip Calculator

If all these calculations feel overwhelming, there is no need to struggle with manual math. You can use the SureShotFX Pip Calculator app. This free tool allows you to calculate pips for any trade quickly and accurately. It also helps you determine pip value based on your contract size, making it easier to plan trades and manage risk without errors.

For beginners, especially a reliable pip calculator removes guesswork and improves trading consistency.

Final Thought — Mastering Pip Basics for Smarter Forex Trading

A pip is more than just a technical term—it is the language of forex trading. By understanding what a pip is, how it measures price movement, and why it matters, traders gain clarity over profits, losses, and risk. From setting stop-loss levels to evaluating strategy performance, pips are at the center of every trading decision.

Mastering these basics opens the door to more advanced topics such as pip-based trading strategies, volatility analysis, and even high-frequency trading models where small pip movements add up over time

This is what you learned today—

• What a pip in forex trading means
• How pips measure price movement across different currency pair
• Why pips are the core unit for calculating profit, loss, and performance