What is a pip, and why does everyone count in them?
The smallest unit forex traders talk in — and how to turn pips into money before you place a trade.
- A pip is 0.0001 on most pairs (0.01 on JPY pairs).
- On one standard lot (100,000 units) a pip is worth about $10 on EUR/USD.
- Spreads, profits and losses are all quoted in pips — convert them to money before you trade.
The one-sentence version
A pip is the fourth decimal place of a currency quote. If EUR/USD moves from 1.0840 to 1.0841, it moved one pip.
Why the fourth decimal?
Most currency pairs are quoted to four decimal places (five if the broker shows "fractional pips", or pipettes). The Japanese yen is the exception: JPY pairs are quoted to two decimals, so one pip is 0.01.
Turning pips into money
This is the part most beginners skip. The value of a pip depends on how much currency you are trading:
- Standard lot (100,000 units): about $10 per pip on EUR/USD
- Mini lot (10,000 units): about $1 per pip
- Micro lot (1,000 units): about $0.10 per pip
So a 20-pip stop loss on one standard lot risks roughly $200. The same stop on a micro lot risks $2. Same chart, same trade, very different consequence.
Where pips show up
- The spread is quoted in pips. A 1.0-pip spread on a standard lot costs you $10 the moment you enter.
- Profit and loss is tracked in pips before it becomes money.
- Stop loss and take profit distances are set in pips.
The cost of skipping this
Traders who think in pips without converting to money routinely size positions ten times larger than they intended. Work the conversion before every trade until it is automatic.
Not investment advice. This is general information and education, written without knowledge of your circumstances. It is not a recommendation to buy or sell any instrument. Past performance is not a reliable indicator of future results. Trading leveraged products carries a high risk of losing money. Risk warning