Learn All About Forex Pips: How to Calculate them?

What is a Pip in Forex?

A pip is the fourth decimal place in most currency pairs. It is the second decimal place in pairs containing Japanese yen (JPY).

Years ago, most currency pairs were only quoted to four decimal places (two in JPY pairs). Back then, a pip was the smallest price change a currency pair could make. If the price of the EUR/USD moves from 1.0577 to 1.0578, that’s a one pip move.

A move from 1.0577 to 1.0586 is a nine pip move. A move from 1.0577 to 1.0677 is a 100 pip move.

Over time, a fifth decimal place was introduced (third for JPY pairs). This is called a pipette. It is a fractional pip, and most brokers now quote prices down to the pipette, or fractional pip. There are 10 pipettes to a pip.

A move from 1.05773 to 1.05775 is 0.2 pips. A move from 1.05773 to 1.05785 is 1.2 pips.

If you’re trading in a JPY pair, you’ll see prices quoted to three decimal places. 131.323 to 131.326 is 0.3 pips of movement. 131.323 to 131.459 is 13.6 pips.

Calculating Forex Pip Value

Each time the price moves, your profit or loss changes. The profit or loss is based on position size, your account currency, and the value of a pip in the pair you are trading.

Before we get into the math, there are calculators which calculate pip value for you, such as our easy-to-use Pip Value calculator. You can always use the pip value calculator if you wish, but I’ll show you the math so you can see how the calculator works.

• Rule 1: The pip value is 10 for a standard lot (1 for a mini lot, and 0.1 for a micro lot) if your account currency is listed second in the pair you’re trading.

For example, if you have a USD account and you’re trading the EUR/USD, the pip value is $10 for a standard lot. That means on a 100K position (standard) lot, every time the price moves one pip you make or lose $10. If you are trading a 10K position, each pip of movement is worth $1, and if trading a 1K position, each pip is worth $0.10.

If you have a GBP account, and you are trading the EUR/GBP, the pip value is £10 for a standard lot. The pip value is still 10, but it is now in a different currency.

What if your account currency isn’t listed second in the pair, or not at all?

For example, let’s say you’re trading the EUR/USD, but you have a GBP account. This is going to require a conversion to get the pip value.

• Rule 2: Divide 10 (for a standard lot) by the rate for YourAccountCurrency/SecondCurrencyListed in the pair you are trading.

As mentioned, you are trading the EUR/USD in a GBP account. From Rule 1 we know that the pip value is $10 if the account were in USD. You need to convert to GBP to get the pip value in your own account currency. Divide 10 by the GBP/USD rate. Assume GBP/USD is 1.2130 (use our exchange rate tool to see current rates).

10 / 1.2130 = 8.24 GBP.

Every time the EUR/USD moves one pip, if you have a standard lot position, the profit or loss in your GBP account will change by £8.24. This is confirmed by the Trading.biz calculator.

Your position size may vary by trade. For instance, if you bought two standard lots, you would be making or losing £16.48 (£8.24 x 2 lots) every time the price moves one pip. If you bought 2000 worth of currency, two micro lots, the pip value is £0.1648 (£8.24/100 x 2 lots).

Why divide the pip amount by 100? This is because a standard lot (100K) is 100 times greater than a micro lot (1K). To get the pip value for a micro lot, divide the standard lot pip value by 100. For a mini lot, divide the standard lot pip value by 10.

The Difference Between a Tick and a Pip

These two terms sometimes get confused, so let’s distinguish what each is and how they differ.

A “tick” can have multiple meanings. Here are the two most common definitions of a tick in terms of trading:

• A transaction. A “tick chart” draws a new price bar after a specified number of transactions. Or the tick chart can show every transaction.
• The minimum price movement of a futures contract. Futures contracts move in points and ticks. There is a specified number of ticks within a point, and this can vary based on the futures contract.

As it relates to a pip, a tick is like a pipette, in that there are 10 pipettes to every pip. However, futures contracts aren’t all the same, so tick values vary. For example, the S&P 500 e-mini futures trade in increments of 0.25 (a tick) and there are four ticks to a point. A tick on oil trading, however, is 0.01 and there are 100 ticks to a point.

The Difference Between a Pip and a Basis Point (BPS)

A pip is similar to a basis point. Let’s explore these two concepts and how they relate.

A “basis point” is 1/100 of a percent. If the Federal Reserve of the US raises interest rates by 25 basis points, that means they raised interest rates by 0.25%. For most currency pairs, there is a value of 100 pips within a cent. Put another way, a pip is 1/100th of a cent. If the EUR/USD is 1.0500, it takes 100 pips of movement to move the price to 1.0600.

For JPY pairs, each 100 pip move increases the price by one yen. If we examine a move from 113.25 to 114.25, that would be a 100 pip move. In this case, a pip is 1/100th of a yen. Most people talk in percentages, you could also talk in basis points.  For example, if your account increased 1% today, you could say the account increased 1%, or 100 basis points.