When you’re learning about forex trading, you’ll often come across terms like pips, points, pipettes, and lots.
These are important to understand because they help you know how much money you can gain or lose in a trade. Let’s break down these concepts in a simple and detailed way, and yes, we’ll do a little math—but don’t worry, it’s not hard.
What Exactly Is a Pip?
In forex, the word “pip” stands for “percentage in point” or “price interest point.” A pip is the standard unit used to measure the change in value between two currencies.
Let’s say the EUR/USD pair moves from 1.1050 to 1.1051—this change of 0.0001 is equal to one pip. So basically, a pip shows how much a currency pair’s price has moved.
For most currency pairs, a pip is the fourth digit after the decimal point. However, for some currencies like the Japanese yen (JPY), a pip is the second digit after the decimal.
- For EUR/USD, one pip = 0.0001
- For USD/JPY, one pip = 0.01
What Is a Pipette?
To be more precise, some forex brokers show prices with extra decimal places—five instead of four or three instead of two. These smaller units are called pipettes or fractional pips, and they represent one-tenth of a pip.
For example:
- If GBP/USD moves from 1.30542 to 1.30543, the difference of 0.00001 is one pipette.
Pipettes allow traders to see smaller price movements more clearly. On trading platforms, these extra digits usually appear slightly smaller or to the right of the standard pip digits.
How to Read Pips and Pipettes on Your Platform
Trading platforms usually display pipettes as smaller numbers to the far right. To help you understand where pips and pipettes fall in the price, think of them like this:
- If the price is 1.23456, the 5 is the pip, and the 6 is the pipette.
- If the price is 109.875, the 7 is the pip, and the 5 is the pipette.
How to Calculate the Value of a Pip
Since every currency has a different value, the pip value can vary depending on the currency pair you’re trading. Let’s look at a few examples using basic math.
Example 1: USD/CAD = 1.0200
(Read as 1 USD = 1.0200 CAD)
Formula:
(Value of one pip in counter currency) × (1 / Exchange Rate) = Pip value in base currency
So we calculate:
(0.0001 CAD / 1.0200 CAD) × 1 USD = 0.00009804 USD per unit traded
If you’re trading 10,000 units, the pip value is:
10,000 × 0.00009804 = 0.9804 USD
So, for every one pip move in USD/CAD, your position will gain or lose about $0.98 USD.
Example 2: GBP/JPY = 123.00
(Read as 1 GBP = 123.00 JPY)
Since JPY pairs are measured to two decimal places, a one pip move equals 0.01 JPY.
Formula:
(0.01 JPY / 123.00 JPY) × 1 GBP = 0.0000813 GBP per unit
If you’re trading 10,000 units, the pip value is:
10,000 × 0.0000813 = 0.813 GBP
That means each pip movement in GBP/JPY will change the position value by approximately £0.81.
How to Convert Pip Value to Your Account Currency
Since forex trading is global, your trading account might not be in the same currency as the currency pair you’re trading. So how do you find out the pip value in your own currency?
It’s simple. Just convert the pip value using the current exchange rate between the pip’s currency and your account currency.
Example: Convert GBP to USD
Let’s go back to our GBP/JPY example. We found the pip value is 0.813 GBP. Now we want to convert that to USD, and we’ll use the exchange rate: GBP/USD = 1.5590.
Since we’re converting from base to counter currency, we multiply:
0.813 GBP × 1.5590 USD = 1.2674 USD per pip
So each pip in your GBP/JPY trade is worth about $1.27 USD when using a 10,000 unit trade size.
Example: Convert USD to NZD
Now let’s convert a 0.98 USD pip value into NZD, using the exchange rate NZD/USD = 0.7900.
Since the NZD is the base currency, we divide:
0.98 USD / 0.7900 = 1.2405 NZD per pip
So, a pip in this case is worth about 1.24 NZD.
Do You Need to Do These Calculations Yourself?
Thankfully, no—most forex brokers automatically calculate pip values for you on their trading platforms. But knowing how pip values work and how they’re calculated gives you better control over your trades and helps you understand how much risk you’re taking.
And if your broker doesn’t show pip values, don’t stress. You can use a pip value calculator online to do the math for you.
Final Tip:
Understanding how pip values work is a key part of becoming a confident and successful forex trader. Don’t jump into live trading until you’re completely comfortable with how profits and losses are calculated.
Want to make it even easier? Use tools like demo accounts, pip calculators, and trading apps that provide pip info in real-time. It’s your money—know how it moves!
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