Pips in Forex Trading: A Simple Breakdown

Learn what pips are in Forex trading, how they measure price changes, and how to calculate pip value for profits and losses. Understand pipettes for precision.

What Are Pips?

A pip, short for "point in percentage," is the tiniest price move in a currency pair. It’s the yardstick Forex traders use to measure changes in value and calculate profits or losses. Knowing a pip’s worth helps you set precise take-profit and stop-loss levels, turning market moves into real account impact.

For most currency pairs, a pip is the fourth decimal place (0.0001). Take EUR/USD: if it shifts from 1.5000 to 1.5001, that’s a 1-pip move. But for pairs with the Japanese Yen (JPY), like USD/JPY, a pip is the second decimal place (0.01)—so 120.00 to 120.03 is 3 pips.

Pipettes: Precision in Pricing

For even finer detail, some brokers use pipettes—one-tenth of a pip. If EUR/USD is quoted at 1.34567, that last "7" is a pipette. This extra precision helps track tiny price shifts, giving traders sharper pricing control.

Calculating Pip Value

To figure out a pip’s worth, use this formula: (pip value in quote currency) × (number of units traded) = pip value in account currency. It ties pips to your bottom line.

For example, buying EUR/USD at 1.2000 and selling at 1.2010 nets a 10-pip profit. Flip it—buy at 1.2000, sell at 1.1990—and you’re down 10 pips. These small moves add up, so understanding pips is key to trading success.

Why Pips Matter

Pips are your compass in the Forex market. They help you gauge risk, set targets, and measure gains or losses with precision—essential for any trader aiming to thrive.