What is Pip?
In forex trading, Pip stands for Percentage in Point or Price Interest Point. It is the smallest unit of price movement for any currency pair.
In simple words, when you see EUR/USD move from 1.1050 to 1.1051, that 0.0001 movement is 1 Pip.
For most major pairs, 1 Pip is the 4th decimal place. So 0.0001 = 1 Pip. For pairs that include Japanese Yen like USD/JPY, 1 Pip is the 2nd decimal place. So 0.01 = 1 Pip.
Understanding Pip is important because your entire profit, loss, risk management and lot size depends on it. If you don’t know what a Pip is, you cannot calculate your risk correctly.
What is Pipette?
Now most brokers give 5-digit pricing. For example EUR/USD 1.10505. The 5th digit is called a Pipette or Fractional Pip. 10 Pipettes make 1 Pip.
How to Calculate Pip?
Calculating Pip is very easy. You just need to find the difference between two prices.
Formula to Calculate Pip
For 4 Decimal Pairs like EUR/USD, GBP/USD:
Pip Difference = (Exit Price – Entry Price) / 0.0001
For JPY Pairs like USD/JPY, EUR/JPY:
Pip Difference = (Exit Price – Entry Price) / 0.01
Example:
If you buy EUR/USD at 1.1000 and it goes to 1.1050:
1.1050 – 1.1000 = 0.0050
0.0050 / 0.0001 = 50 Pips
So you made 50 Pips profit.
Same for USD/JPY. If you buy at 149.00 and close at 149.50:
149.50 – 149.00 = 0.50
0.50 / 0.01 = 50 Pips
What is Pip Value?
Pip Value means how much money you make or lose in dollars when price moves by 1 Pip. This is the most important part for every trader.
Many new traders only count Pips, not dollars. Remember, 50 Pips can mean $5 or $500, it depends on your lot size.
Pip Value depends on three things:
- The currency pair you are trading
- Your lot size
- Your account currency
How to Calculate Value of Pip?
This is where most beginners get confused. Read this carefully.
Main Formula for Pip Value
Pip Value = (One Pip / Exchange Rate) _ Lot Size
Here One Pip = 0.0001 (for JPY pairs 0.01)
Exchange Rate = Current rate of that pair
Lot Size = How many units you are trading (Standard Lot = 100,000)
Example 1 – Pair with USD as second currency like EUR/USD
This is the simplest. For EUR/USD, 1 Standard Lot Pip Value is always $10 when your account is in USD.
If market moves 10 Pips in your favor:
0.01 Micro Lot (1,000 units) = $0.10 per Pip = $1 profit for 10 Pips
0.10 Mini Lot (10,000 units) = $1 per Pip = $10 profit for 10 Pips
1.00 Standard Lot (100,000 units) = $10 per Pip = $100 profit for 10 Pips
Example 2 – USD/CHF Example
Suppose USD/CHF rate is 0.9000 and you trade 1 Standard Lot.
Pip Value = (0.0001 / 0.9000) _ 100,000 = $11.11
Example 3 – USD/JPY Example
Suppose USD/JPY rate is 150.00 and lot size is 1 Standard Lot.
Pip Value = (0.01 / 150.00) _ 100,000 = $6.66
So in USD/JPY, 1 Pip is not $10, it is $6.66. That is why Pip Value is different for every pair.
Example 4 – Cross Pair like EUR/GBP
Suppose EUR/GBP rate is 0.8500 and GBP/USD rate is 1.2700. Your account is in USD.
First calculate Pip Value in GBP:
(0.0001 / 0.8500) _ 100,000 = 11.76 GBP
Now convert to USD:
11.76 * 1.2700 = $14.93
So for this cross pair, 1 Pip Value is $14.93.
Factors That Affect Pip Value
- Account Currency: If your account is in PKR, EUR or GBP, value will change.
- Currency Pair: USD pairs have straight calculation, cross pairs are different.
- Lot Size: Standard, Mini, Micro changes Pip Value by 10 times.
- Market Rate: As rate changes, Pip Value also changes slightly.
Conclusion
Pip is the foundation of forex. If you don’t know how to calculate Pip and Pip Value, you can never manage your lot size and risk properly. Remember, successful trading is not about counting Pips, it is about managing risk in dollars.
Always check your Pip Value before taking any trade. You can use our free Pip Calculator to get accurate profit and loss estimation for every trade.
Disclaimer: This tool is for educational purposes only. We are not a financial advisor. Trading involves risk.