You open your trading platform for the first time and see red and blue numbers flashing rapidly, along with terms like ‘spread,’ ‘leverage,’ and ‘margin. But one word appears more than any other. That word is Pip.
It is the most common source of confusion for beginners. Yet, it is the most important concept to master. If you do not understand pips, you cannot calculate your risk. If you cannot calculate risk, you are gambling, not trading.
In this comprehensive guide, we will answer the critical question: What is pip in forex trading? We will move beyond the dictionary definition and show you how to read quotes, calculate profit in dollars, and count pips in special assets like Gold (XAUUSD). This guide is designed to be practical, so you can finish reading and immediately understand your charts.
Pip Meaning in Forex: The Core Definition
The term “PIP” stands for “Percentage in Point” or “Price Interest Point.”
In simple terms, a pip is the standard unit of measurement for price movement in the forex market. We measure distance in the real world using meters or miles. In forex, distance is measured in pips.
Currencies have different values. One US Dollar is not equal to one British Pound. We cannot say “the price moved one cent.”” We need a universal unit to measure change across all currency pairs. That unit is the pip.
The Standard: Four Decimal Places
Most major currency pairs are quoted to four decimal places. The pip is located at the 4th decimal place. Let us look at the EUR/USD exchange rate:
- Quote A: 1.1050
- Quote B: 1.1051
The price moved from 0 to 1 at the end. This distinct movement is one pip. If the price moves from 1.1050 to 1.1060, the price has increased by 10 pips. This standard applies to most pairs involving the US Dollar, Euro, British Pound, Swiss Franc, and Canadian Dollar.
The Great Exception: Japanese Yen Pairs
There is one major rule you must remember. Japanese Yen pairs do not follow the four-decimal standard. The Yen is a much smaller unit of currency compared to the Dollar. Pairs like USD/JPY, GBP/JPY, and EUR/JPY are quoted to two decimal places. Here, the pip is the 2nd decimal place.
- Quote: 145.50
- Move: 145.51
- Result: 1 Pip
This distinction is vital. Many beginners lose money because they look at the wrong number on a Yen chart. If you are trading USD/JPY and the price moves from 145.00 to 146.00, that is a massive 100 pip move, not a 1 pip move.
Forex Pip Explained: The Pipette (Fractional Pip)
Modern technology has changed how brokers display prices. In 2026, almost every broker (like Exness, XM, or IC Markets) uses “5-Digit Precision.”
They add a tiny, fifth number to the quote. This is called a Pipette or a “Fractional Pip.”
- Quote: 1.10505
- The “5” is the Pipette.
The Math:
- 10 Pipettes = 1 Pip.
Why do brokers do this? It allows them to offer tighter spreads. Instead of charging you 2 full pips, they might charge you 1.5 pips. When you calculate your targets, you can generally ignore the pipette. Focus on the standard pip for your math.
How Much Is One Pip Worth?
This is the most popular question we receive: “How much money will I make if I catch 10 pips?”
The answer depends entirely on your trading volume, also known as “Lot Size.” In forex, you buy currency in blocks called “Lots.” The size of the block determines the value of the pip. We categorise lot sizes into three main groups: Standard Lot, Mini Lot, and Micro Lot.
Standard Lot (1.00)
This is for institutional traders or those with large capital.
- Units: 100,000
- Pip Value: $10 per pip (approx)
If you trade 1 Standard Lot of EUR/USD and the price moves 10 pips, you make
100∗∗.Ifitmoves100pips,youmake∗∗
100∗∗.Ifitmoves100pips,youmake∗∗
1,000.
Mini Lot (0.10)
This is the most common size for serious retail traders.
- Units: 10,000
- Pip Value: $1 per pip (approx)
If you trade 0.10 lots and catch 20 pips, you make $20.
Micro Lot (0.01)
This is the starting point for beginners. We highly recommend you start here.
- Units: 1,000
- Pip Value: $0.10 per pip (approx)
If you trade 0.01 lots and lose 50 pips, you only lose $5. This allows you to learn how to calculate lot size for 100 dollar account balance safely.
Pip Value Cheat Sheet (EUR/USD)
| Lot Type | Volume on MT4 | Units Traded | Value per 1 Pip |
| Standard | 1.00 | 100,000 | $10.00 |
| Mini | 0.10 | 10,000 | $1.00 |
| Micro | 0.01 | 1,000 | $0.10 |
How to Calculate Pips in Gold (XAUUSD)
Most general guides ignore this. However, we know that Gold (XAUUSD) is the most popular asset for traders in 2025. You must understand how to count pips here because it is different from currencies.
Gold is priced in Dollars and Cents.
- Quote: 2050.10
In Gold, a 10-cent move is usually considered 1 Pip.
(Note: Some brokers call this 10 points. Always check your broker’s specification.
- Price A: 2050.10
- Price B: 2050.20
- Difference: 1 Pip
- Price A: 2050.00
- Price B: 2051.00
- Difference: 10 Pips
If you buy 1 Standard Lot of Gold, a
1moveinprice(10pips)equalsa∗∗
1moveinprice(10pips)equalsa∗∗
100 profit or loss**. Gold has extremely high market volatility. A standard daily move in Gold can be 200 to 300 pips ($20 to $30 price change). Treat this asset with extreme caution.
Pip vs Point in Forex: Clearing the Confusion
If you use MetaTrader 4 (MT4) or MetaTrader 5 (MT5), you will encounter the term “Points.” This often causes panic for new traders when setting their Stop Loss.
- Rule: 1 Pip = 10 Points.
When you modify an order in MT4, the distance is measured in points (pipettes).
- If you want a 50 Pip Stop Loss, you must enter 500 Points.
- If you want a 10 Pip Take Profit, you must enter 100 Points.
Never confuse the two. If you enter “50” thinking it is pips, you are actually setting a Stop Loss of only 5 pips. The market noise will hit your stop immediately.
Pip Calculation Forex: The Profit Formula
Let us apply this to a real-world scenario to see how profit and loss work.
The Trade Setup:
- Pair: GBP/USD (British Pound vs US Dollar)
- Account Balance: $500
- Order Type: Buy (Long)
- Lot Size: 0.05 (5 Micro Lots)
The Market Move:
- You enter the trade at 1.2500.
- The news is positive for the Pound. The price rises.
- You close the trade at 1.2550.
The Step-by-Step Math:
- Calculate Pips: 1.2550 – 1.2500 = 50 Pips.
- Calculate Pip Value: Since 0.01 lot =
- 0.10,then0.05lots=∗∗
- 0.10,then0.05lots=∗∗
- 0. 0,50 per pip.
- Calculate Total Profit: 50 pips x
- 0.50=∗∗
- 0.50=∗∗
- 25.00**.
You just made a 5% gain on your account. This shows why understanding pip calculation for Rex is essential. You do not need to make 1000 pips to make money. You need consistent, calculated wins.
Bid and Ask Price: The Cost of Business
Every time you trade, you pay a fee in pips. This is the spread in forex. Brokers show you two prices:
- Bid: The price to sell.
- Ask: The price to buy.
Let us say the EUR/USD quote is:
- Bid: 1.0900
- Ask: 1.0902
The difference is 2 pips. When you click “Buy,” your trade opens at 1.0902. The market price is currently 1.0900. You are immediately losing 2 pips. The price must rise by 2 pips just for you to break even.
This is why trading volume and session times matter. During the London and New York sessions, volume is high, and spreads are low (often 0 to 1 pip). During the Asian session, spreads can widen, making it harder to cover your pip cost.
Leverage and Pip Value
Leverage is a double-edged sword. It allows you to trade larger lot sizes than your balance normally permits.
- With $100 and no leverage, you can barely trade a Micro Lot.
- With $100 and 1:500 leverage, you can open a Mini Lot (0.10).
However, remember the pip value.
- Micro Lot pip value: $0.10.
- Mini Lot pip value: $1.00.
If you use high leverage to open a Mini Lot on a $100 account, a movement of just 50 pips against you will wipe out 50% of your account. Market volatility can move 50 pips in minutes. We advise beginners to ignore high leverage and focus on small pip values.
How Many Pips Is Good in Forex Trading?
This question has no single answer. It depends on your strategy.
- Scalpers: They look for small, quick wins. They are happy with 5 to 10 pips. They might trade 10 times a day.
- Day Traders: They analyse the daily structure. They target 20 to 60 pips. They usually take 1 or 2 trades.
- Swing Traders: They hold positions for days. They target 100 to 500 pips.
Do not obsess over the number of pips. Obsess over the quality of the pips. A trader who captures 20 pips with a Standard Lot makes more money than a trader who captures 100 pips with a Micro Lot. However, the risk is also higher.
Conclusion
We have explored the depths of what is pip in forex trading. It is the language of the market. Without it, you cannot communicate with the charts.
Let us summarise the key points you must remember:
- A Pip is usually the 4th decimal place (0.0001).
- For Japanese Yen pairs, it is the 2nd decimal place (0.01).
- One Standard Lot pays approx $10 per pip.
- One Micro Lot pays approx $0.10 per pip.
- Gold and Indices calculate pips differently—always check the contract.
- Never confuse Pips (Standard) with Points (Pipettes) in MT4.
The next step is yours. Open your demo account. Look at the spread. Calculate your risk in pips before you press that buy button. When you respect the pip, you respect your capital.
FAQs
What does pip mean in forex for beginners?
For a beginner, think of a pip like a “point” in a game. It is the smallest score the market can move. If the market moves up 10 points (pips), and you bet $1 per point, you make $10.
How do I calculate the pip value for EUR/USD?
It is simple. If you trade a Standard Lot (1.00), each pip is worth $10. You trade a Mini Lot (0.10), and each pip is worth $1. If you trade a Micro Lot (0.01), each pip is worth $0.10.
Is 20 pips a day good?
Yes, 20 pips a day is excellent. If you consistently catch 20 pips every day without large losses, you will outperform 90% of traders. Consistency is more important than large numbers.
Why is my pip value different for CAD or CHF pairs?
The value is always calculated in the “Quote Currency” (the second currency in the pair). For EUR/USD, the quote is USD, so the value is fixed at $10. For USD/CAD, the quote is CAD. The pip value is roughly $7.50 USD (depending on the exchange rate) because the Canadian Dollar is worth less than the US Dollar.
What is the difference between pip and a pipette?
A pip is the 4th decimal place. A pipette is the 5th decimal place. 1 Pip equals 10 Pipettes. Pipettes are used for precise pricing and tighter spreads.
