If you're new to forex trading, you've probably heard traders say things like "I made 50 pips today" or "My stop loss is 20 pips away." But what exactly is a pip, and why does it matter?
Understanding pips is fundamental to forex trading—they're how we measure price movements, calculate profits and losses, and manage risk. This guide will explain everything you need to know in simple, beginner-friendly language.
What Is a Pip?
Think of a pip like a penny—it's the basic unit we use to count change in the forex market.
Visual Examples of Pips
Example 1: EUR/USD Movement
New Price: 1.0851
Movement: 1 pip UP ⬆
Starting Price: 1.0850
New Price: 1.0800
Movement: 50 pips DOWN ⬇
Example 2: GBP/USD Movement
New Price: 1.2525
Movement: 25 pips UP ⬆
How to Count Pips (Simple Method)
For most currency pairs, count the change in the fourth decimal place:
Difference: 0.0025
Move decimal 4 places: 25
Result: 25 pips
GBP/USD: 1.2650 → 1.2620
Difference: -0.0030
Move decimal 4 places: -30
Result: 30 pips DOWN
Japanese Yen Pairs: The Exception
Currency pairs involving the Japanese yen are quoted to two decimal places instead of four, so a pip is the second decimal place (0.01).
Starting Price: 148.50
New Price: 148.51
Movement: 1 pip UP ⬆
Starting Price: 148.50
New Price: 149.00
Movement: 50 pips UP ⬆
What Is a Pipette (Fractional Pip)?
Many brokers now quote prices with an extra decimal place. This is called a pipette or fractional pip—it's 1/10th of a pip.
EUR/USD: 1.08503 (the 3 is a pipette)
Movement from 1.08503 to 1.08508 = 0.5 pips (or 5 pipettes)
3-Decimal Pricing (Yen):
USD/JPY: 148.506 (the 6 is a pipette)
Movement from 148.506 to 148.516 = 1 pip (or 10 pipettes)
Key Point: For beginners, you can usually ignore pipettes and focus on the main pip value. They're more relevant for scalpers and high-frequency traders.
How Much Is a Pip Worth in Dollars?
This is where it gets practical. The dollar value of a pip depends on three things:
- Position size (how many lots you're trading)
- Currency pair (which currencies are involved)
- Exchange rate (for cross-currency pairs)
Standard Pip Values (USD Account)
| Position Size | EUR/USD Pip Value | GBP/USD Pip Value |
|---|---|---|
| 1 Standard Lot (100,000) | $10 per pip | $10 per pip |
| 1 Mini Lot (10,000) | $1 per pip | $1 per pip |
| 1 Micro Lot (1,000) | $0.10 per pip | $0.10 per pip |
Calculating Profit and Loss with Pips
Position: 1 standard lot EUR/USD
Entry: 1.0850
Exit: 1.0880
Movement: 30 pips
Pip Value: $10
Profit: 30 pips × $10 = $300
Trade Example 2:
Position: 0.5 standard lots GBP/USD (50,000 units)
Entry: 1.2650
Exit: 1.2620
Movement: -30 pips (loss)
Pip Value: $5 ($10 × 0.5)
Loss: 30 pips × $5 = $150
The Pip Value Formula
For pairs where USD is the quote currency (second currency):
Pro Tip: Don't memorize this formula. Use our free pip calculator to calculate pip values instantly.
Why Pips Matter for Trading
1. Measuring Performance
Instead of saying "I made $300," traders say "I made 30 pips on EUR/USD." This standardizes performance across different account sizes and position sizes.
2. Setting Stop Losses and Take Profits
Stop losses and take profit levels are typically expressed in pips:
- "I'm risking 20 pips with a 40-pip target" (1:2 risk-reward)
- "My stop loss is 50 pips below support"
- "I'm taking profit at 100 pips"
3. Position Sizing
To calculate proper position size, you need to know your stop loss in pips:
Account: $10,000
Risk: 1% ($100)
Stop Loss: 25 pips
Pip Value Needed: $100 / 25 pips = $4 per pip
Position Size: 0.4 lots ($10 per pip × 0.4 = $4)
Common Pip-Related Terms
Spread
The difference between bid and ask price, measured in pips.
Spread: 2 pips
(You pay 2 pips to enter the trade)
Slippage
The difference between expected price and actual fill price, measured in pips.
Actual fill: 1.0853
Slippage: 3 pips
Pip Range
The total movement from high to low in a given period.
Daily Low: 1.0830
Daily Range: 50 pips
How Many Pips Per Day Is Good?
This is a common beginner question. The answer: It doesn't matter. What matters is your risk-reward ratio and win rate.
| Strategy | Avg Pips/Trade | Trades/Day | Total Pips/Day |
|---|---|---|---|
| Scalping | 5-10 pips | 10-20 | 50-200 pips |
| Day Trading | 20-40 pips | 2-5 | 40-200 pips |
| Swing Trading | 50-200 pips | 0-1 | 50-200 pips |
Key Insight: A scalper making 5 pips on 10 trades (50 pips total) earns the same as a swing trader making 50 pips on 1 trade—assuming same position size and win rate.
Pips and Different Trading Styles
Scalping (Short-term)
- Target: 5-15 pips per trade
- Stop Loss: 5-10 pips
- Holding Time: Seconds to minutes
- Spread cost is significant (2-3 pips on 10-pip target)
Day Trading (Intraday)
- Target: 20-50 pips per trade
- Stop Loss: 15-30 pips
- Holding Time: Minutes to hours
- Spread cost is moderate
Swing Trading (Multi-day)
- Target: 100-300 pips per trade
- Stop Loss: 50-150 pips
- Holding Time: Days to weeks
- Spread cost is minimal relative to target
Using Our Free Pip Calculator
Instead of manually calculating pip values, use our calculator to:
- Calculate pip value for any currency pair
- Convert pips to dollars (or any account currency)
- Determine profit/loss based on pip movement
- Plan trades with precise risk management
Quick Reference Guide
| Pair Type | Example | Decimal Places | 1 Pip |
|---|---|---|---|
| Major Pairs | EUR/USD | 4 (0.0001) | 0.0001 |
| Yen Pairs | USD/JPY | 2 (0.01) | 0.01 |
| Cross Pairs | EUR/GBP | 4 (0.0001) | 0.0001 |
Common Beginner Mistakes with Pips
Mistake #1: Counting Pips Wrong on Yen Pairs
Wrong: USD/JPY moves from 148.50 to 149.50 = 100 pips
Right: That's actually 100 pips ✓ (each 0.01 = 1 pip)
Mistake #2: Ignoring Spread When Calculating Profit
Wrong: "I entered at 1.0850 and exited at 1.0860, so I made 10 pips."
Right: With a 2-pip spread, you actually made 8 pips (10 - 2 = 8)
Mistake #3: Risking Too Many Pips
Wrong: Using a 200-pip stop loss on a day trading strategy
Right: Match stop loss size to trading timeframe (20-40 pips for day trading)
Conclusion
Pips are the universal language of forex trading. Once you understand them, you can:
- Calculate your profit and loss accurately
- Set appropriate stop losses and take profits
- Determine correct position sizes
- Communicate with other traders
- Track your trading performance
Now that you understand pips, the next step is learning how to use them in your position sizing calculations.
Calculate Pip Values & Position Size (Free) →
Related Articles:
• How to Calculate Position Size in Forex Trading
• The 1% Risk Rule: Complete Trading Guide
• Risk Reward Ratio: The Secret to Profitable Trading
Disclaimer: This educational content is for informational purposes only. Forex trading carries substantial risk. Always practice on a demo account before trading with real money.