What Is Pip in Forex?

Definition:

Currency prices typically move in such tiny increments that they are quoted in pips or percentage in point (price interest point). In most cases, a pip refers to the fourth decimal point of a price that is equal to 1/100th of 1%.

For examples: If the EUR/USD moves from 1.0918² to 1.0919², the .0001 USD rise in value is equal to one (1) pip.

• Notes: 0.0000²:The superscript number at the end of each price is the Fractional Pip, which is 1/10th of a pip. The fractional pip provides even more precise indication of price movements.

Japanese Yen (JPY) is an exeptional because it is quoted to two (2) decimal points.

Forex examples: If USD/JPY moves from 189.08⁰ to 189.19⁰, that an increase of eleven (11) pips.

Calculating the value of a pip:

The value of a pip varies based on the currency pairs that you are trading and depends on which currency is the base currency and which is the counter currency.

(Size of a Pip) x (Base Currency) = Pip Value

(Size of a Pip) / (Exchange Rate) x (Base Currency) = Pip Value

*** Take a look at an example of USD as the counter currency: EUR/USD

• EUR is the base currency;
• USD is the counter currency;
• You earn 1 USD for every pip increase: 1 pip x 10,000 euros = 1 USD.

SELL	BUY
1.11600	1.11700

• If you buy 10,000 EUR against the U.S. dollar at 1.1160⁰ and you sell at 1.1170⁰, you will make 10 USD for a 10-pip increase.

• If you buy at 1.1160⁰ and you sell at 1.1150⁰, you will lose 10 USD for a 10-pip decrease.

*** Take a look at an example of USD as the base currency: USD/JYP

• USD is the base currency;
• JPY is the counter currency;
• You earn 0.895 USD for every pip increase: 1 pip / 111.70 x 10,000 USD = 0.895 USD

SELL	BUY
111.600	111.700

• If you buy 10,000 U.S. dollars against the Japanese yen at 111.60⁰ and you sell at 111.70⁰, you will make 8.95USD for a 10-pip increase.
• If you buy 10,000 U.S. dollars against the Japanese yen at 111.60⁰ and you sell at 111.50⁰, you will lose 8.95USD for a 10-pip decrease.

What is the difference between pip and point?

A pip, or “percentage in point”, is the basic unit of measurement of price differences, while a point is the minimum amount of price change.

For example,

• The difference between 1.23234 and 1.23244 is 1 Pip.
• The difference between 1.23234 and 1.23237 is 3 Points.

Pip vs point

The formula used to define the relationship between these two terms is:

1 pip = 10 points
Thus a point is 1/10th of a pip.

Pip Size

A pip size is a number that indicates the placement of the pip in a price, which for most currency pairs is a standard value of 0.0001.

For example, the pip size for EURUSD is 0.0001. This means that if we look at the price of EURUSD at any given point in time, the 4th place after the decimal point is the pip. This means the point is the 5th place.

There are currency pairs that have a pip size of 0.01, for example XAUUSD. This means that for XAUUSD, the pip is the 2nd place after the decimal point, and the point is the 3rd place.

The table below lists the pip sizes for trading instruments with different price formats.

	Standard currencies	Gold, Silver, JPY	Cryptocurrencies
Price format	EURUSD: 1.21568	USDJPY: 113.115	BTCUSD: 6845.25
Pip	4th decimal	2nd decimal	1st decimal
Point	5th decimal	3rd decimal	2nd decimal
Pip size	0.0001	0.01	0.1

Pip size is a very important tool in various calculations, the most common one being spread.

Read What is margin?

Read What is Spread?