What is a Pip in Forex Trading?
A pip (Percentage in Point) is the smallest unit of price movement in forex trading. For most currency pairs, a pip is 0.0001 (the fourth decimal place). For Japanese Yen pairs, a pip is 0.01 (the second decimal place).
Understanding pip values is crucial for forex traders because it directly impacts your profit and loss calculations. When you know the monetary value of each pip, you can accurately plan your risk management and position sizing strategies.
💡 Pip Size by Pair Type
Most Pairs (EUR/USD, GBP/USD):
1 Pip = 0.0001
Yen Pairs (USD/JPY, EUR/JPY):
1 Pip = 0.01
How to Calculate Pip Value: The Formula
Pip Value Formula:
Pip Value = (Pip Size × Lot Size in Units)
Step-by-Step Example:
Trading EUR/USD with 1 Standard Lot:
- Pip Size: 0.0001
- Lot Size: 1 Standard Lot = 100,000 units
- Calculation: 0.0001 × 100,000 = $10 per pip
If the pair moves 50 pips in your favor:
Profit = 50 × $10 = $500
Different Lot Sizes:
Standard Lot
100,000 units
$10 per pip
Mini Lot
10,000 units
$1 per pip
Micro Lot
1,000 units
$0.10 per pip
Converting Pip Value to Your Account Currency
If your account currency differs from the quote currency of the pair you're trading, you need to convert the pip value:
Conversion Formula:
Pip Value (Account) = Pip Value (Quote) × Exchange Rate
Example: Trading EUR/USD with INR account, pip value = $10, USD/INR = 83.50
Pip Value = $10 × 83.50 = ₹835 per pip
Why Pip Value Matters for Risk Management
Calculate Exact Risk
Know exactly how much you'll lose per pip if the trade goes against you. Multiply pip value by stop loss distance.
Proper Position Sizing
Use pip value with your risk tolerance to determine the correct lot size for each trade.
Set Realistic Profit Targets
Calculate potential profit in your account currency before entering a trade.
Frequently Asked Questions
What is a pipette?
A pipette (or fractional pip) is 1/10th of a pip. Many brokers quote prices to 5 decimal places (e.g., 1.12345), where the 5th digit is a pipette. This provides more precise pricing.
How do I calculate pip value for gold (XAU/USD)?
For gold, 1 pip = $0.01 price movement. With 1 standard lot (100 oz), pip value = $0.01 × 100 = $1 per pip. For 1 oz (micro lot), pip value = $0.01.
Does pip value change during trading?
If your account currency is the same as the quote currency (e.g., USD account trading EUR/USD), pip value stays constant. If they differ, pip value fluctuates with exchange rates.
How many pips should I target per trade?
This depends on your trading style. Day traders might target 10-50 pips, while swing traders might target 50-200 pips. Focus on risk-reward ratio (e.g., 1:2) rather than absolute pip targets.