What is a pip? A simple guide for beginners

If you are new to forex, you will hear the word pip almost immediately. It is simply the unit traders use to measure price movement.

What is a pip?

For most currency pairs, a pip is a move in the fourth decimal place. If EUR/USD moves from 1.0850 to 1.0851, it has moved one pip.

For pairs that include the Japanese yen, such as USD/JPY, a pip is the second decimal place. A move from 150.20 to 150.21 is one pip.

Why does pip value matter?

The pip itself is just a distance. What matters for your account is how much money one pip is worth for the size of your trade:

• 1 standard lot = 100,000 units
• 1 mini lot = 10,000 units
• 1 micro lot = 1,000 units

For a pair quoted in US dollars, such as EUR/USD, one pip on one standard lot is worth about $10. On a micro lot it is about $0.10.

A quick example

Say you buy 0.10 lots (one mini lot) of EUR/USD with a stop-loss 25 pips away. One pip is worth about $1, so if the stop is hit, you lose about $25 (plus costs such as spread).

Knowing this before you enter is the basis of risk management. Our free pip value calculator does the maths for any pair and lot size.

Key takeaways

• A pip is a small, standard unit of price movement.
• Pip value depends on the pair and your position size.
• Always know your money risk before you open a trade.