What is a pip in Forex trading?

In this article, you’ll learn what a pip is and how to calculate its value.

Before you start trading, it’s essential to understand the basic Forex concepts - like how much money a gain or loss of 50 pips really represents.

Let’s get started!

What is a pip in Forex?

I often speak with clients who have been “trading” for years but don’t even know the value of 1 pip. Don’t make the same mistake! Take the time to learn this - at first glance it may seem unimportant or simple, but it’s the small details that make the difference between a losing and a winning trader.

A pip is the unit of measurement used to express the change in value between two currencies.

For example, if EUR/USD is trading at 1.1148 and then moves to 1.1149, that’s a 1-pip change. Normally, a pip is the fourth decimal place, except for currency pairs involving the Japanese yen (JPY), where a pip is the second decimal place.

For example, if USD/JPY is trading at 108.53 and then moves to 108.54, that’s a 1-pip change.

See how it looks on the MetaTrader 5 trading platform.

What is a pipette?

Nowadays, almost all brokers quote currency pairs with 5 decimal places for pairs not involving the Japanese yen (JPY) and 3 decimal places for pairs that include the yen.

This extra decimal place is equal to one-tenth of a standard pip and is called a pipette.

For example, if EUR/USD is trading at 1.11490 and then moves to 1.11491, that’s a 1-pipette move, or one-tenth of a pip.

For currency pairs involving the Japanese yen, it looks like this:

If USD/JPY is trading at 108.531 and then moves to 108.532, that’s a 1-pipette change.

See how it appears on the trading platform.

To get an idea of what each digit in the quote represents, see the image below.

How to calculate the value of a pip?

Before we move on to the calculations, it’s important to note that the value of a pip has nothing to do with the leverage you use.

It doesn’t matter whether you trade with 1:100 or 1:500 leverage - the pip value remains the same!

The easiest way to calculate a pip is with the following formula:

1 pip = 0.0001 × lot size × number of lots

The result is in the quote currency (the second currency in the pair).

For currency pairs involving the Japanese yen (JPY), the formula is slightly different:

1 pip (JPY) = 0.01 × lot size × number of lots

Again, the result is in the quote currency (the second currency in the pair).

Example with EUR/USD:

1 pip = 0.0001 × 100,000 × 1 = $10

Remember, the result is always in the second currency of the pair!

A pip in the currency value

Example with EUR/USD

1 pip = 0.0001 × 100,000 × 1 = $10

Again, the result is in the quote currency (USD in this case).

If you want the pip value in your account currency (if it’s different from USD), you need to convert it using the current exchange rate. 

For example, if your account is in EUR, you calculate the pip value in EUR by dividing the result by the EUR/USD rate:

$10 / 1.1140¹ = 8,97666 EUR

If you want to see the pip value in BGN, divide $10 by 0.569 (since 1 BGN = $0.569, or $1 = 1.757 BGN):

$10 / 0,569 = 17,574 BGN

In other words, 1 pip in EUR/USD equals:

$10 = 8.9766 EUR = 17.574 BGN

These calculations are based on the exchange rates at the time of writing. Rates may have changed by the time you read this.

What’s important to remember is that 1 pip in EUR/USD with 1 lot always equals $10. The equivalent in EUR or BGN will fluctuate as exchange rates against the dollar change.

To make trading even easier, we’ve developed an expert system to help you determine trade risk and calculate pip value in your account currency. The Trading Assistant EA will show you the exact trade volume and the amount you can afford to risk before opening a position.

Example with USD/JPY

1 pip = 0.01 × 100,000 × 1 = 1,000 ¥

To convert 1,000 ¥ into dollars, divide it by the current USD/JPY rate, which at the time of writing is 108.57:

1,000 ¥ / 108.57 = $9.21

Using the same method, you can also calculate the value in EUR and BGN.

Here too, 1 pip with 1 lot will always equal 1,000 ¥. The equivalent value in USD, EUR, or BGN will fluctuate as exchange rates against the yen change.

The table below shows pip values for 1 lot across different currency pairs, converted into the respective currencies.

Practice is the best teacher, so download the trading platform, open a risk-free demo account, and start practicing. Click the button below.

Summary

A common misconception among beginners—and not only beginners—is that the value of a pip depends on your account leverage or even the margin!

I hope it’s now clear that this is not true at all.

The pip value actually depends on the trade size, the currency pair, and the exchange rate of the currency you want to convert it into.