What is a Pip in Forex : What Every Trader Should Know?

If you are interested in Forex, you are likely to have come across the term ‘pip’ or ‘pips’. This is a very common concept in Forex trading. But what is a pip? This article will address this question, explaining the meaning of a pip.

What is a pip in forex?

The unit of measurement to measure the change in value between two currencies is called a “pip.” This is represented by a single digit move in the fourth decimal place in a typical forex quote.

For example, if the price of EUR/USD moves from 1.1402 to 1.1403 this would be a one pip or ‘point’ movement.

Calculating forex price moves

Now that we are clear on what a pip is let’s see how much money we can gain or lose for each movement.

This can be calculated very simply: 

• Positions size x 0.0001 =Monetary value of a pip

Here is a quick example using the EUR/USD as we have above:

We open a position size of 10,000 units and calculate the pip value as follows: 10,000 (units) x 0.0001 (one pip) = $1 per pip.

The exception – USD/JPY pips

When trading major currencies against the Japanese Yen, traders need to know that a pip is no longer the fourth decimal but rather the second decimal. This is because the Japanese Yen has a much lower value than the major currencies.

Pips is very useful as a measure that allows traders to always communicate in the same terms without confusion.

Check our Forex Pip Calculator.

About our author

Sarah Thompson

Sarah Thompson is a professional Forex trader with over 7 years of experience in the financial markets. She specializes in Forex trading strategies, technical analysis, Gold and Indices market trends, risk management, and performance evaluation. Since joining SureShotFX in 2021, Sarah has authored numerous in-depth articles, reports, and insights for traders of all experience levels.