Pip meaning: what is a pip in forex?

What "pip" means

Outside trading, the word has several meanings: the seed of an apple or an orange, the spots on dice and dominoes, a short beep. In the UK, PIP is also the name of a disability benefit (Personal Independence Payment). None of those are what a trader means.

In forex, a pip is the smallest standard step in which a currency price is quoted and discussed. The name is usually expanded as "percentage in point" or "price interest point", though nobody uses either phrase in practice. Traders simply say "the pair moved 40 pips" or "my stop is 25 pips away", because a pip count is easier to compare across trades than a string of decimals.

Prices on most pairs are shown to four decimal places, plus a smaller fifth digit. If EUR/USD is quoted at 1.08504, the fourth decimal (the 0 before the final 4) is the pip, and the fifth digit is a pipette, one tenth of a pip. A move from 1.08504 to 1.08604 is ten pips.

Pip size: four decimals, two for the yen

The pip is not the same number on every market, because currencies are priced on very different scales.

The yen rule exists because one yen is worth less than one cent, so a fourth-decimal step on USD/JPY would be too small to matter. Gold is quoted in dollars and cents per ounce, and there is no single convention for what a "pip" is: many platforms call $0.10 a pip and $0.01 a point, some call a full $1 move a pip. When someone quotes a stop on gold in pips, ask what they mean, or talk in dollars instead. See XAU/USD for how gold is quoted.

What a pip is worth: worked numbers

The pip value is how much money you make or lose for each pip the price moves. It depends on two things: the size of the trade, measured in lots, and the currency the pair is quoted in.

Pairs quoted in US dollars

For EUR/USD, GBP/USD and any pair ending in USD, the arithmetic is simple. One pip is 0.0001 of the quote currency, multiplied by the number of units:

Yen pairs

On USD/JPY the pip is 0.01 yen, so one standard lot earns 1,000 yen per pip. To turn that into dollars, divide by the exchange rate. At 150.00, 1,000 yen is $6.67, so a pip on one standard lot of USD/JPY is worth about $6.67, and the figure drifts as the rate moves.

Gold

One standard lot of gold is usually 100 troy ounces. A $1.00 move in the gold price is therefore $100 per lot, $10 per 0.10 lot and $1 per 0.01 lot. If your broker calls $0.10 a pip, one pip on one lot is $10, the same as EUR/USD, which is likely why that convention spread.

The pip calculator does these sums for any pair and account currency, including crosses such as EUR/GBP where the pip is worth a converted amount.

Why pips matter for risk

Pips turn a chart idea into a money decision. A stop 30 pips away on one standard lot of EUR/USD risks $300; the same stop on a micro lot risks $3. The chart did not change, only the size did. That is why traders plan in pips first and then choose the size: decide where the stop belongs on the chart, count the pips to it, and pick the lot size that makes that distance cost an amount you accept, such as 1% of the account.

The position size calculator works backwards from your risk and stop distance to the lot size. The spread is also counted in pips: a 1-pip spread on EUR/USD means every trade starts one pip in the red.