What is Pips in Forex Trading? A Beginner’s Guide by Signal Expert Global
Understanding the language of forex trading is essential to succeed in the market—and one of the most basic yet crucial terms every trader must know is “pips.” At Signal Expert Global, we ensure that both beginner and advanced traders grasp the foundation of forex mechanics to make informed decisions. In this blog, we’ll explore what is pip, how to calculate pip values, and why this tiny unit matters so much in your trading journey.
A pip, or “price interest point,” is the smallest unit of movement in the exchange rate of a currency pair in forex trading. Most commonly, one pip equals 0.0001, or one-hundredth of 1% (1/100 of 0.01%), for currency pairs that are quoted to four decimal places.
In simple terms, if EUR/USD moves from 1.1000 to 1.1001, it has moved one pip.
At Signal Expert Global, we always emphasize risk management and precision in trading. Pips are central to both. They help traders:
Measure price movements
Calculate spreads
Define stop-loss and take-profit levels
Analyze potential gains or losses
Understanding what a pip is gives you a better control over your trade positioning and risk levels.
How Are Pips Quoted in Forex?
Most currency pairs are quoted to four decimal places, where the pip is the fourth decimal digit.
For example: EUR/USD = 1.1234 → Pip is “4”
However, Japanese yen pairs, such as USD/JPY, are quoted to two decimal places. In this case, the pip is the second digit after the decimal.
USD/JPY = 110.25 → Pip is “5”
Pip vs Pipette: What’s the Difference?
You may also come across the term pipette, which is one-tenth of a pip (0.00001 for most currency pairs, and 0.001 for yen pairs). While pips represent the whole-number change in the exchange rate, pipettes offer more precision in pricing.
| Term | Decimal Place | Value |
|---|---|---|
| Pip | 4th decimal | 0.0001 |
| Pipette | 5th decimal | 0.00001 |
How to Calculate the Value of a Pip
The value of a pip depends on:
The currency pair
The exchange rate
The lot size of your trade
Let’s break down the pip value for different scenarios.
1. When USD is the Quote Currency (EUR/USD)
If you’re trading 10,000 units (mini lot) of EUR/USD:
Pip value = 10,000 × 0.0001 = $1
If the pair moves by 10 pips, you earn or lose $10, depending on the direction of your trade.
2. When USD is the Base Currency (USD/CAD)
Formula:
Pip Value = (0.0001 ÷ Exchange Rate) × Trade Size
For a standard lot of 100,000 units at an exchange rate of 1.2829:
Pip value = (0.0001 ÷ 1.2829) × 100,000 = $7.79
Special Case: Japanese Yen (JPY) Pairs
Since yen pairs are quoted with two decimal places, the pip value is calculated differently:
Formula: (0.01 ÷ Exchange Rate) × Trade Size
For example, with EUR/JPY at 132.62 and a trade size of 100,000:
Pip value = (0.01 ÷ 132.62) × 100,000 = $7.54
Pips in Action: Real Trading Example
Let’s say you buy EUR/USD at 1.1000 and sell at 1.1030.
Movement = 30 pips
If you traded 1 standard lot (100,000 units), your profit = 30 pips × $10 = $300
On the other hand, if you bought USD/JPY at 112.06 and exited at 112.01:
Movement = 5 pips
If pip value is $9.00, your profit = $45
Even small pip movements can lead to significant profits or losses depending on your position size.
What Is the Spread in Forex and How Is It Measured in Pips?
The spread is the difference between the bid price (what buyers are willing to pay) and the ask price (what sellers are asking for).
For example:
EUR/USD Bid: 1.1051
EUR/USD Ask: 1.1053
Spread = 0.0002 = 2 pips
At Signal Expert Global, we help you identify pairs with low spreads to reduce your trading costs.
How Do Pips Influence Profitability?
Pips are directly tied to your profits or losses. Whether you’re day trading, swing trading, or using copy trading strategies, your trade outcomes are measured in pips.
A 10-pip gain on a $100,000 trade = $100 profit
A 25-pip loss on a $50,000 trade = $125 loss
With proper strategy, pip movements can work in your favor. That’s where Signal Expert Global’s analytics and signals come in.
Historical Context: When Pips Lose Relevance
During periods of hyperinflation, pips may become ineffective in tracking currency values. For instance:
Weimar Germany (1923): 1 USD = 4.2 trillion marks
Turkey (2001): 1 USD = 1.6 million lira (the government later removed six zeros)
Such extreme cases are rare but highlight how market instability can distort pip-based valuation.
Bottom Line: Why Pips Matter at Signal Expert Global
Knowing what is pip and how to calculate their value is fundamental for every forex trader. Whether you’re managing your own trades or copying expert traders through our platform, understanding pip mechanics will help you:
Evaluate trade outcomes
Calculate position sizing
Minimize risk and maximize potential
At Signal Expert Global, we’re committed to empowering traders with knowledge, tools, and strategies that go beyond just signals. Learn, analyze, and trade with confidence—one pip at a time.