What is Pip?

In the foreign exchange (forex) market, currency pairs are quoted to four or five decimal places. A pip is the standardized unit representing the fourth decimal place — a change of 0.0001 in the quoted price. For example, if the EUR/USD exchange rate moves from 1.0850 to 1.0851, it has moved one pip.

The exception is Japanese yen pairs, which are quoted to two decimal places. For these pairs, one pip equals 0.01 (the second decimal place).

Many brokers now quote prices to a fifth decimal place — sometimes called a pipette or fractional pip — representing one-tenth of a pip. This provides finer price granularity and tighter spreads.

Why pips matter in practice:

• Standardized measurement: Pips allow traders to express price movements and profit/loss in a consistent unit regardless of the actual exchange rate level.
• Calculating profit and loss: The monetary value of a pip depends on the lot size being traded. For a standard lot (100,000 units of the base currency), one pip on EUR/USD equals approximately $10. Pip value varies by currency pair and position size.
• Spread measurement: The difference between a broker’s bid and ask price is expressed in pips. A 2-pip spread means the buy price is 0.0002 above the sell price.

Pip calculations are foundational to position sizing, risk management, and measuring trading performance in forex markets. The concept has also been adapted informally in some cryptocurrency trading discussions, though crypto markets do not use standardized pip conventions.