When traders begin their trading journey in the forex market, they come across many terms every day, like “pip”, “points”, “lots”, etc. One of the most common and important terms is pip. Be it trading, crypto, stocks, or gold, pip is everywhere, but what is a pip? And what is a pip in forex trading?
A pip is a measuring unit that expresses the value change between two currencies. It becomes convenient when you can differentiate what a pip is in currency trading, what a pip is in gold, and what pips are in forex; this article is for you. This guide lets you learn:
- Meaning of pip in forex markets and across asset classes.
- Calculation formulas for all assets.
- The difference between pips, points, and ticks.
- Difference between a standard pipette and a fractional pipette.
- Common mistakes to avoid when dealing with pips.
What Are Pips in Forex Trading? Complete Definition for Beginners
In forex trading, a pip, also known as a price interest point, is the smallest price movement for a currency pair. It is one-hundredth of 1%. As most currency pairs are priced out to four decimal places, a single pip is the fourth decimal place.
For instance, when EUR/USD is being traded, the smallest whole unit movement up or down the pair could make is $0.0001 (1 pip). If it moves from 1.1000 to 1.1010, then the percentage change is 10 pips. Interestingly enough, in JPY pairs, one pip is equal to 0.01, as these pairs have two decimals. With pip, traders can measure profit, loss, or volatility.
What Does Pip Mean Across the Markets
Across various markets such as gold, stocks, and crypto, pip holds different meanings as its size changes with each market.
For forex, the pip value is 0.0001. But pip’s value varies across markets. For example:
- What does “pip” mean in stocks or stock trading? It is defined as a 1-cent movement.
- What does “pips” mean in crypto? It is defined as a $1 movement.
- What is one pip in gold? It is defined as $0.01, or 1 cent.
| Type | Definition | Smallest Move |
| Forex | 4th decimal of one value. | 0.0001 |
| Gold | One cent movement in the value. | 0.01 |
| Crypto | Non-standard pip. | 1 USD or 0.01 |
| Stocks | One cent | 0.01 |
What is 1 Pip in Forex? The Foundation of Price Movement
When traders buy or sell currencies, they measure relative value to the other currency. For the forex pairs, quotes appear as bid and ask, represented as four decimal places.
For example, when you ask “what is 1 pip in EUR/USD?” It is the smallest exchange movement that is measured by a pip. Like a move from 1.1000 to 1.1001 is the +1 pip change.
Formula to Calculate Pip Value
When calculating pips, its value depends on your currency pair, the exchange rate, and the trade’s value. For major currency pairs like EUR/USD and USD/CAD, the process for calculating pip varies.
For instance, in the case of USD as the quote currency of the pair or the second currency in a pair is in EUR/USD, the pip remains fixed at 0.0001. So if you multiply 10,000 by 0.0001, the pip is $1. If you buy 10,000 euros against the dollar at 1.0601 and sell it at 1.0611, then the resulting profit of $10 pips is your profit.
For pairs like AUD/USD, the formula is:
Trade Value x (Pip Size / Exchange Rate)= Pip Value
$100,000 x (0.0001 /0.6670)= $6.67
So, if you divide 0.0001 by the pair’s exchange rate of 0.6670 and multiply it by the trade value of $100,000, you get $6.67 pips. This means that if you buy or sell 100,000 AUD at 0.6671, then you make a profit or loss of $6.67 per pip.
What is 1 Pip Worth in Different Markets?
Each market evaluates the worth of 1 pip differently and answers questions like what is 1 pip in XAU/USD or what is 1 pip in NASDAQ. To calculate the value of 1 pip, look at the following table:
| Market | Movement | Pip size for the Market | 1 Pip Worth |
| Gold (XAU/USD) | 3350.00 to 3350.10 | $0.01 | $10 per lot |
| Crypto (BTC/USD) | 55,000 to 55,001 | $1 | $1 crypto pip |
| Stocks (NASDAQ Index) | 19,000 to 19,001 | 1 point=$1 | $1 per CFD point |
Pip Value Calculations Explained
A pip value is calculated to understand how much money traders gain or lose for every single pip price movement. Currency pair, trade volume (lot), and current exchange rate determine the pip value. If the lot is higher, the corresponding pip value will be higher too. Meanwhile, small lots reduce pip value.
Pip Calculation Universal Formula
When you worry, “How do I calculate my pip?” or “Is 1 pip 10 dollars?”, you can use a universal formula that is applicable across forex markets.
Trade Size x (One Pip / Exchange Rate)= Pip Value
With this formula, traders can calculate the pip value for each currency pair using the current exchange rate.
Let’s take the EUR/USD pair, for example. If the 1 pip for EUR/USD is 0.0001 and 1 lot is 100.000 EUR, and the exchange rate is $1.1000, then
$100,000 x (0.0001/ 1.1000)= $9.09
Typical Pip Worth Table
The typical pip worth varies for each currency. These estimated values vary with time depending on the exchange rate. To understand how many pips make $1, how many pips are $10, or how many pips are $100 or $500, you can use the table below:
| Type | 1 Lot (100,000), Per Pip | 0.1 Lot (10,000), Per Pip | 0.01 Lot (1000), Per Pip |
| EUR/USD | $10 | $1 | $0.10 |
| USD/JPY | $9.1 | $0.91 | $0.09 |
| GBP/USD | $10 | $1 | $0.10 |
Pipettes and Micro Movements
In forex trading, another question that often comes up is, what is a pipette in forex? A pipette is a fractional pip that represents 1/10th of a pip. With it, traders can measure price movements more precisely. It is valued as 0.00001 (the fifth decimal place) for most currency pairs. Meanwhile, for JPY, it is valued at 0.001 (third decimal).
Additionally, when you question what pip is changing to, know that it can change from 4 decimals to 5 decimals to offer you more precision. For example, the standard pip is 0.0001, while a pipette is 0.00001. This precision allows traders to easily navigate their way through high-frequency trading and tight spreads in the volatile forex trading landscape.
Pips and Lots: Understanding Position Size
While pips and lots are two different concepts entirely, to understand pips value, a lot size is required. Let’s take a look at the table to understand the concept better.
| Lot Size | Base Currency Units | Approx Dollar Value Per Pip |
| Standard Lot = 1 | 100k | $10 |
| Mini Lot = 0.1 | 10k | $1 |
| Micro Lot = 0.01 | 1k | $0.10 |
So, if I ask what lot size I can trade with $10, the answer relies on leverage. For $10, it will be a 0.01 lot size. The next question that comes up is about how much a 0.01 lot pip is worth. The answer for 0.01 lot is $0.10 per pip. Up next, how much is a pip in a 0.01 lot size? It’s 10 cents per pip.
When we calculate how many units are in 0.01 lot. It’s 1,000 units.
How much USD is 0.01 units? It’s $0.01 per pip move in EUR/USD.
When beginners get into trading, they often ask, is 0.01 a good lot size? The answer is to understand how pips work without going through large drawdown limits.
Asset-Specific Pip Examples
Let us look at different examples of pip based on each asset class.
Forex
In forex, whichever currency pair you trade, each follows its own pip structure. For example, you would be wondering what is a pip in GBP/JPY or in USD/JPY. Look at the table below explaining that.
| Type | Pip Size | Examples |
| GBP/JPY | 0.01 | 200.00 to 200.50 = 50 pips |
| USD/JPY | 0.01 | 125.00 to 125.50 = 50 pips |
| EUR/USD | 0.0001 | 1.1500 to 1.1510 = 10 pips |
Gold
Similarly, for gold (XAUUSD), the question arises: what is a pip in XAU/USD? So the answer is $0.01. If the price moves from 2300.00 to 2300.50, this is a 50 pips movement.
Crypto
To understand what is a pip in crypto trading, we need to check the broker since it heavily depends on that. Typically, 1 pip equates to a $1 change. For instance, if in the BTC/USD pair, the price movement changes from 60,000 to 60,050, and if you buy or sell, you stand to make a profit or loss of 50 pips.
Stocks
One pip in the stocks is equal to a $0.01 price movement. A stock pip can also be a cent. For instance, if the Apple price moves from 160.00 to 160.10, then the one stock pip is 10 pips.
How to Calculate Pips in Other Markets
The pip size varies based on each asset class. For instance, for forex, it is 0.0001. For crypto, it is $1 per CFD point. However, the question of what are pips in day trading is yet to be answered. In day trading, traders use a variable pip size and focus on points or ticks per day to measure the loss or profit made.
When trading, traders need to go beyond forex and learn how to calculate pip’s monetary value across different assets in the markets to become a skilled trader. These include currencies, commodities, stocks, and cryptocurrencies.
Forex Pairs
When trading the forex market, traders need to watch the currency pair being traded, the lot size, and the exchange rate of the quote currency against the account currency to measure the pip value. To calculate pip value in forex, traders can use:
Pip Value = (One Pip / Exchange Rate) x Lot Size
For instance, if we trade the EUR/USD pair for one standard lot, then one pip is 0.0001 for the pair, whereas the exchange rate is 1.1000; after applying the formula, one pip for the pip is $9.09.
Gold (XAU/USD)
For gold, one pip is quoted at two decimal places, such as $0.01. To calculate the pip value, we take the lot size as 100 ounces, and multiply the parameters with the value of the pip and lot size together. For instance, 0.01100=$1.
Stocks CFDs
For stock trading, one pip is equal to cents or ticks and represents the smallest price change in the pair. For instance, if Apple’s price goes from $160.00 to $160.05, the resulting price change is 5 pips, or a $0.05 move. To calculate pip value for stocks, take 100 shares of Apple and divide that by 0.05.
100 x $0.05=$5
The $5 suggests that the pip value for each share is $0.01. However, for 100 shares, it is $1.
Crypto Pairs
In cryptocurrencies, the pip value is represented by each decimal you used by the exchange. For instance, let’s consider a BTC/USD, which is quoted as $68,100.50, then one pip is $0.01. When you trade 1 BTC, and the price moves from $58,200.70 to $58,200.80, that’s a 1 pip move. When it’s a 10-pip move, the price change is 10 pips, which you multiply by $0.01 per pip. So it’s $0.10.
Pip Size x Lot Size = Pip Value
$0.10 x 1 BTC = $0.10
Similarly, for a 0.1 BTC (mini lot), it will be $0.01 for the same 10 pips movement.
Why Understanding Pip Value Matters
During trading, traders need to calculate their risk exposure or potential gains for long-term success.
Understanding pip value tells you how much money you could gain or lose in a trade so that you control risk exposure and determine right position size relative to your account balance.
Without knowing pip value, traders can’t measure how much to risk, which results in overleveraging, inconsistent results and poor performance.
Pips, Points, Ticks-What’s the Difference?
Different markets use different terms for pips. While forex trading uses the common term “pips”, other markets use terms like “points” and “ticks”. You might think that a 10-pip move is the same as a 10-tick or 10-point move, however; that’s not the case, as their monetary value varies.
| Type | Definition | Monetary Value |
| Pips (forex) | Smallest unit of price movement. | 0.0001 for most pairs, 0.01 for gold and yen. |
| Points (indices or stocks) | Measures one full unit change. | 1.0 |
| Ticks (futures or commodities) | Smallest measuring unit | Depends on the exchange Value. |
How Pips Affect Trading Strategies
Traders use different strategies depending on their style, risk appetite, and objectives. They use pips for measuring entry and exit points, stop-loss and target distances, and profit per trade to enhance their execution and grow in the long run.
Scalping
Scalpers generate profits from small price movements such as 5 or 10 pips. Scalping is a high-frequency style, which requires precision, and speedy execution. Knowing the exact pip value helps determine the risk per position.
Day Trading
Day traders aim to profit from daily market fluctuations such as 30 to 100 pips. The risk per position also varies from 30 to 100 pips. For an accurate lot size and risk allocation, a trader must know the pip value correctly. You can use DayTradersDiary’s position size calculator tool to calculate the lot size.
Swing Trading
Swing traders gain profits from multi-day trends that can go from several days to weeks. This means traders trade with hundreds of pips as a stop-loss or take-profit. Having the right knowledge about pips helps traders set wider stop losses along with larger profit targets to manage the volatility with precision and efficiency.
Calculating Profit in Pips Example
Traders measure the pips to calculate the profit or loss. Be it a small pip movement or large. Both could contribute to the profit or loss, based on your selected lot size.
For instance, if you buy EUR/USD at 1.1500 to 1.1550, there is a price change of 50 pips; that is your profit in pips. If your lot size is standard, such as 100,000 units, then use this formula to calculate your profit or monetary gain.
Pips Size x Pip Value= Profit in $
50 x $9.09 = $454.50
Common Mistakes When Understanding Pips
Many traders including beginners make these unnecessary mistakes during their trading journey due to lack of knowledge about pips.
- One of the common mistakes is assuming that all assets use 4 decimals, like 0.0001. However, most brokers and prop firms use fractional pips or pipettes instead, which are one tenth (1/10th) of a pip.
- Some traders misunderstand that the pip value for all assets remain the same while some think there’s a gross difference in value. The truth is that pip value for different currency pairs vary by a nominal difference. However, the difference is big compared to commodities and indices.
- Pip value is key to determine lot size and allocate risk. Some traders ignore this and use greater margin resulting in significant losses.
How to Measure Pip-Based Performance
Traders measure their performance using three approaches:
- Pip based performance
- Monetary value based performance
- Percentage based performance
Pip Gain vs. Monetary Gain
Traders measure pip-based performance to track overall consistency, and win rate of strategy. This is a more mathematical approach that reduces the discretion. Monetary gain only shows whether you are profitable or not.
However, you are unaware of the quality of your trading, which is determined by average gain versus average losses in pips, and maximum gain or loss in pips. Earning more pips shows a trader’s real performance and consistency. You can use MyFXBook to track your performance in detail.
FAQs About Pips in Forex
What are pips in forex trading used for?
In forex reading, traders use pips to calculate the price movement in the currency being traded and the generated profit and loss. It is also used to define risk-to-reward ratio.
How do you calculate pip value in trading?
You can use the formula below to calculate pips value:
(One Pip / Exchange Rate) x Lot Size = Pip Value
What are pips in forex, and how many per lot?
In forex trading, pips are the smallest unit of price movements. One standard unit is 0.0001. One standard lot of 100,000 is equal to $10 per pip for the USD-quoted pairs.
How can I track my trading performance in pips?
You can download the trade journal from DayTradersDiary and use it to track your performance in both monetary terms and in pips.
Is there any guide to learn more about forex trading as a beginner?
You can learn about the forex ecosystem to learn trading as a beginner. This guide can help you grab several resources to enhance your skills.
Conclusion
Traders must understand what a pip is and its role in different market conditions. Be it forex, crypto, stocks, or gold, learning basics about pips and its calculations allows traders to efficiently manage your positions.
Once traders learn how pips work in trading, they can track their performance, and develop a well-defined risk management plan. A pip is considered as the language of price movement, which must be understood properly. You can learn further from free resources like BabyPips School of Pipsology or The5ers Academy to enhance your concepts about pips and trading in general.