A pip, which stands for “percentage in point,” is the smallest standard unit used to measure price movement in a currency pair. For most currency pairs, a pip represents the fourth decimal place in the quoted price.
A common exception is pairs involving the Japanese yen, where a pip is measured at the second decimal place.
Below are examples of how currency pair quotes are displayed, illustrating where the pip is located for each pair:
EUR/USD = 1.13422
GBP/CAD = 1.71791
USD/JPY = 110.771
In Forex trading, a point represents a fraction of a pip. Most brokers now quote currency pairs with an additional digit beyond the pip, increasing pricing precision.
Ten points make up one pip, meaning the final digit in a currency quote is considered a point. For example, a spread of 1.4 pips is equal to 14 points.
This terminology applies specifically to Forex. For other instruments, such as indices, the term base point or index point is used instead.
If the FTSE 100 is trading at 7664.95, one index point represents one pound.
The monetary value of a pip depends on the currency pair being traded and the position size you open.
Profit or loss is calculated by multiplying the number of pips moved by the pip value for the trade.
To calculate pip value in Forex, multiply the pip in decimal form by the trade size in units. To express the value in the base currency, divide by the current exchange rate.
Let’s go through a few examples to make this clearer.
For most currency pairs, one pip equals 0.0001. A standard lot of 100,000 units therefore has a pip value of 10 units of the quote currency.
For Japanese yen pairs, one pip equals 0.01, meaning a standard lot has a pip value of 1,000 JPY.
A micro lot of 1,000 units equals $0.10 per pip on EUR/USD and ¥10 on USD/JPY. A mini lot equals $1 per pip on EUR/USD and ¥100 on USD/JPY. A standard lot equals $10 per pip on EUR/USD and ¥1,000 on USD/JPY.
In Forex trading, a tick refers to a single change in price, regardless of how many points the price moves by.
If EUR/USD moves from 1.10564 to 1.10567, this is considered one tick, even though the price increased by three points.
In futures and commodities markets, a tick represents the smallest possible price movement and is used to calculate profit and loss.
Pips, points, and ticks are all terms used to describe price movement in financial markets. In Forex, a pip usually refers to the fourth decimal place, or the second for JPY pairs.
Trading costs and profit or loss are calculated using pip values multiplied by the number of pips moved.
Points and ticks are defined differently when trading indices, futures, or commodities.
