What a pip is
A pip is the standard unit of movement in a currency pair. For most pairs it is the fourth decimal place, 0.0001: EUR/USD moving from 1.0850 to 1.0851 is one pip. For pairs quoted in Japanese yen it is the second decimal place, 0.01, because the yen’s value per unit is so much smaller. Many brokers quote one more digit than that; the extra digit is a pipette, a tenth of a pip.
How pip value is calculated
A pip is always worth a fixed amount of the quote currency, the second currency in the pair:
pip value (quote currency) = pip size × position size in units
One standard lot is 100,000 units of the base currency, so on EUR/USD one pip on one lot is 0.0001 × 100,000 = 10 US dollars. On USD/JPY it is 0.01 × 100,000 = 1,000 yen.
The quote currency is usually not your account currency, and that conversion is the step people get wrong. There are three cases:
- Your account is in the quote currency. No conversion. A USD account trading EUR/USD: $10 a pip per lot, always.
- Your account is in the base currency. Divide by the pair’s price. A USD account trading USD/JPY at 150.00: 1,000 yen ÷ 150 = $6.67 a pip per lot. This value changes as the pair moves.
- Neither. Convert using a third rate. An AUD account trading half a lot of EUR/USD makes $5 a pip; at 1 USD = 1.52 AUD, that is A$7.60 a pip. The calculator asks for this rate only when it needs it.
Why pip value matters
Pip value is what turns a stop distance into money. A 20-pip stop on one lot of EUR/USD risks $200 in a USD account, but the same 20 pips on one lot of USD/JPY risks $133. On GBP/JPY in an AUD account, the figure is different again. Traders who assume “$10 a pip” on every pair end up risking more or less than they planned on every trade outside the USD-quoted majors.
The usual workflow runs the other way: decide the money you are willing to lose, measure the stop in pips, and divide by the pip value per lot to get the position size. The position size calculator does exactly that, and the forex lot size guide walks through it with worked examples.
Tips to consider
- Refresh the rate for base-currency and cross accounts. If your account currency is the base, or neither currency in the pair, pip value drifts with exchange rates. Recalculate when rates have moved.
- Check your broker’s contract size. Most use 100,000 units per lot, but some CFD brokers and some metals contracts differ.
- Pips are not points. Some platforms show distances in points, which are usually pipettes. A 200-point stop on a five-digit quote is 20 pips.
- Spread is paid in pips too. A 1.2-pip spread on one lot of EUR/USD costs $12 the moment you enter.