What Is a Pip in Trading and How to Calculate It

Talk about pips often sounds like Forex jargon, but once you get the hang of it, it’s pretty straightforward. Think of a pip as the smallest standard price move a currency pair can make — the unit traders use to measure gains and losses. In this guide I’ll explain what a pip is, how pip values work, and show simple formulas and examples so you can calculate pip value quickly. No financial advice — just practical explanations.

Quick definition: What’s a pip?

A pip (short for “percentage in point” or “price interest point”) is the smallest price increment in a currency pair. For most currency pairs, a pip is 0.0001 (fourth decimal). For pairs involving the Japanese yen (JPY), a pip is 0.01 (two decimal places).

Pips vs. pipettes

Modern platforms often show fractional pips called pipettes. A pipette is one-tenth of a pip — for most pairs it’s the fifth decimal (0.00001) and for JPY pairs it’s the third decimal (0.001). Pipettes give more precise pricing, but when people say “pips” they usually mean the standard pip.

Why pips matter

Pips are the common language of profit and loss in Forex. When someone says they made 50 pips on EUR/USD, that gives a quick picture of the price move — then you convert pips into money using your trade size (lot size).

Basic pip values by lot size

Lot sizes determine how much a pip is worth:

• Standard lot = 100,000 units
• Mini lot = 10,000 units
• Micro lot = 1,000 units

For many USD-quoted pairs (like EUR/USD), one pip in a standard lot is $10, a mini lot is $1, and a micro lot is $0.10. But this changes when USD isn’t the quote or when dealing with JPY pairs — we’ll cover that below.

How to calculate pip value — step-by-step

Here’s a practical approach you can follow for most situations.

1. Identify the pip size for the pair: usually 0.0001 for most pairs, 0.01 for JPY pairs.
2. Multiply pip size by your lot size to get the pip value in the quote currency.
3. If the pip value is not in your account currency, convert it using the appropriate exchange rate.

Formula summary

In plain terms:

Pip value (in quote currency) = pip size × lot size

Pip value (in account currency) = (pip size × lot size) × conversion rate (if needed)

Examples

1) EUR/USD (USD is the quote currency)

Assume EUR/USD = 1.2000. Pip size = 0.0001.

• Standard lot (100,000): pip value = 0.0001 × 100,000 = $10
• Mini lot (10,000): pip value = 0.0001 × 10,000 = $1
• Micro lot (1,000): pip value = 0.0001 × 1,000 = $0.10

Because USD is the quote currency, that result is already in USD — no conversion needed.

2) USD/JPY (USD is the base currency)

Assume USD/JPY = 110.00. Pip size = 0.01 (because JPY pairs use two decimals).

Pip value in JPY for a standard lot = 0.01 × 100,000 = 1,000 JPY per pip.

To get the value in USD (account currency), divide by the exchange rate:

Pip value (USD) = 1,000 ÷ 110.00 ≈ $9.09 per pip (standard lot).

3) EUR/GBP (neither currency is USD)

Assume EUR/GBP = 0.8600 and GBP/USD = 1.3800. Pip size = 0.0001.

Pip value in GBP = 0.0001 × 100,000 = 10 GBP (standard lot).

Convert to USD using GBP/USD: pip value (USD) = 10 × 1.3800 = $13.80 per pip.

Quick reference formulas

To summarize in compact form:

• If quote currency = account currency (e.g., EUR/USD for USD account): pip value = pip size × lot size
• If quote currency ≠ account currency, convert the pip value from the quote currency into your account currency with the relevant exchange rate.
• For JPY pairs use pip size = 0.01 (and pipettes = 0.001).

Tools that save time

If you prefer not to do the math every time, there are handy calculators online. BabyPips has a straightforward pip calculator and educational material, and Investopedia explains pips clearly as well. Check their guides for more examples: BabyPips — What is a Pip and Investopedia — Pip definition.

Practical tips

• Know your account currency — that determines whether you need to convert pip values.
• Remember lot sizes: standard, mini, micro — they make the math intuitive.
• Use pipettes for finer precision, but report profit/loss in full pips when summarizing moves.
• When in doubt, copy the example for your specific pair and adjust the exchange rate.

Final notes

Pips are an essential building block of Forex trading vocabulary. Once you understand pip size, lot size, and when to convert currencies, calculating pip value becomes quick and predictable. If you want to practice, pick a pair, assume a lot size, and run through the steps above — it gets easier fast.

Not financial advice. This post is educational and intended to explain pip mechanics only.