If you’re learning how to trade in the forex market, one of the most important things to understand is the pip. You’ve probably seen phrases like “50 pips profit” or “tight spread of 2 pips.” But what exactly is a pip, and how much is it worth?
In this simple guide, we’ll break down everything you need to know about the forex trading pip, including what is the value of a pip in forex and how it impacts your profits and losses.
What Is a Pip in Forex?
In forex trading, a pip stands for “percentage in point” or “price interest point.” It is the smallest unit of price change in a currency pair. Traders use pips to measure how much a currency pair moves over time.
🔹 For most currency pairs:
- 1 pip = 0.0001 (the 4th decimal place)
🔹 For Japanese yen (JPY) pairs:
- 1 pip = 0.01 (the 2nd decimal place)
📌 Example:
- If EUR/USD moves from 1.1050 to 1.1060, that’s a 10-pip move.
- If USD/JPY moves from 135.50 to 135.70, that’s a 20-pip move.
Pips make it easy to describe small changes in price and calculate profits or losses.
What Is the Value of a Pip in Forex?
The value of a pip in forex depends on:
- The currency pair you’re trading
- The size of your trade (called the lot size)
- The exchange rate
Let’s break it down based on lot sizes.
Standard Lot (100,000 units)
- 1 pip is worth $10
- A 20-pip move = 20 × $10 = $200 profit or loss
Mini Lot (10,000 units)
- 1 pip is worth $1
- A 30-pip move = 30 × $1 = $30 profit or loss
Micro Lot (1,000 units)
- 1 pip is worth $0.10
- A 50-pip move = 50 × $0.10 = $5 profit or loss
So as you can see, even small pip movements can mean big changes in your trading results, depending on the size of your position.
How to Calculate Pip Value
Here’s a simple formula to calculate the pip value:
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Pip Value = (1 pip / Exchange Rate) × Lot Size
Example:
Let’s say you’re trading 1 standard lot (100,000 units) of EUR/USD at an exchange rate of 1.1000:
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Pip Value = (0.0001 / 1.1000) × 100,000 = $9.09
So each pip is worth about $9.09 in this case.
Note: This value will vary slightly with exchange rate changes.
Special Case: JPY Pairs
When trading currency pairs that include the Japanese yen, the pip calculation is slightly different because the pip is at the second decimal.
Example:
If you trade 1 standard lot of USD/JPY at 135.00:
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Pip Value = (0.01 / 135.00) × 100,000 = $7.41
So each pip is worth approximately $7.41.
Why Is Pip Value Important in Forex?
Understanding pip value is critical because it directly impacts how much you gain or lose in a trade.
Here’s Why It Matters:
- It helps you manage risk
- It shows how much you’re investing per trade
- It helps set stop-loss and take-profit levels
- It allows you to size your positions correctly
If you don’t know what each pip is worth, you could risk too much without realizing it.
Forex Trading Pip and Spreads
In forex, brokers earn money through the spread — the difference between the buying (ask) and selling (bid) price of a currency pair.
This spread is also measured in pips.
Example:
If EUR/USD has a bid of 1.1000 and ask of 1.1002, the spread is 2 pips.
That means when you open a trade, you’re already 2 pips behind — this is the cost of the trade.
Quick Recap: Forex Pip in Action
Let’s say:
- You buy 1 mini lot (10,000 units) of EUR/USD at 1.1000
- The price rises to 1.1050
That’s a 50-pip move.
If each pip is worth $1, you made $50 profit.
If the price went the other way, you would lose $50.
Understanding pip value keeps your trading smart and under control.
Use a Pip Calculator
Don’t want to do the math every time? Use a pip calculator. Most forex brokers offer free tools that calculate pip value instantly based on:
- The currency pair
- Lot size
- Account currency
Popular tools:
- Myfxbook Pip Calculator
- BabyPips Pip Value Tool
- Built-in calculators in trading platforms like MetaTrader
Final Thoughts: Master the Pip, Master Your Trading
To trade forex successfully, you need to understand the forex trading pip and know what is the value of a pip in forex. This knowledge will help you:
- Measure profits and losses accurately
- Manage risk effectively
- Plan trades with confidence
Even though a pip is small, it plays a huge role in every decision you make as a trader. Start by learning how pips work, and you’ll build a stronger foundation for long-term success in the forex market.
