What is a pip in forex and how do you calculate its value?

Bank notes of different currencies
Rebecca Cattlin
By :  ,  Financial Writer

A pip is a measure of movement in forex markets, used to assess price changes, plus calculate position sizes and margin payments. Find out everything you need to know about pip values in forex.

What is a pip in forex?

A pip in forex is the standard value of change for a given currency pair. The term pip stands for ‘price in percentage’ or sometimes ‘price interest point’ and is used to measure price movements in an exchange rate.

A pip is equal to a single digit change in the fourth figure after the decimal point in an exchange rate: or a move of 0.0001. For example, if the price of EUR/USD moves from 0.9940 to 0.9941, it’s increased by one pip.

The only currency pairs that don’t follow this rule are those including the Japanese yen, which is only priced to two decimal places. So, if the current USD/JPY rate was 148.55 and it moved to 0.148.56, that would be a one-pip move.

Are a pip and a pipette the same?

No, a pip and pipette are not the same. Pips were the standard smallest incremental move a forex pair was make, but modern technology has meant that brokers can quote currencies beyond this to five decimal places (and three decimal places for JPY).

These extra points are called fractional pips, or pipettes. They’re the equivalent of one tenth of a pip or 0.00001. For example, if the price of EUR/USD moves from 0.99401 to 0.99402, it’s increased by one pipette.

What is a pip’s value?

A pip’s value varies depending on the currency pair being traded, the size of the trade and the current exchange rate of the pair. Your pip value will also change depending on what currency your account is denominated in.

A pip’s value will change throughout the lifespan of your position as the spot price of the rate fluctuates, so it’s important to be able to calculate the value of a pip or use an online calculator to do it for you.

How to calculate pip value in forex

To calculate the value of a pip (for a four-decimal currency pair) you’d multiply your position size by 0.0001, and divide it by the current spot price. The pip value formula looks like this:

Pip value = (0.0001 x trade amount) / spot price

You might also choose to convert your pip value back into the base currency of your trading account.

Example: calculating pip value for GBP/USD

For example, say you opened a trade on GBP/USD worth £50,000 when it’s trading at 1.1500. The value of a pip would be:

(0.0001 x 50,000)/1.1500 = £5.75

If the GBP/USD rate increased to 1.1600, your new pip value would be:

(0.0001 x 50,000)/1.1600 = £5.80

Example: calculating pip value for GBP/JPY

If you were calculating the pip value in a JPY trade instead, the formula would be slightly different – because JPY is only quoted to two decimal points. Here, the calculation is:

Pip value = (0.01 x trade amount) / spot price

So, if GBP/JPY was trading at 123.000, and you took a position worth £10,000, your pip value would be:

(0.01 x 10,000) /123.000 = £0.81

Pip value calculator

If you don’t want to calculate the value of a pip yourself, you can use our forex margin and pip calculator to find the value of a single point of movement quickly and easily.

All you need to do is choose your base currency and trade size, and which market you want to trade, and we’ll do the rest for you.

Start using the pip calculator

How to use pips in forex trading

Pips have a few different uses in forex trading, so you’ll see the term pop up again and again. Let’s take a look at how pips are used for calculating profit and loss, the spread and position size.

Profit and loss

The most common use for pips is to calculate profit or loss from a position.

Let’s say you buy GBP/USD at 1.1500 and it moves to 1.1550, the price has moved 50 pips in your favour, which would mean you could close your trade for a profit – depending on any other costs and charges.

However, if the market fell instead, and the new GBP/USD rate was 1.1460, the price has moved 40 pips against your position, and you’d have a loss if you closed it.

Spread

Pips are also used to quote the spread between the buy and sell prices for a given currency pair.  For example, if the bid price for GBP/USD was 1.1527 and the ask price was 1.15290, you’d have a spread of 2 pips.

Position size

Pips can be useful when calculating your forex position size and ensuring you’re not entering positions that are too large for your allotted capital and risk appetite. You should always consider how much of your capital would be wiped out if your position experienced a loss.

Here’s how to calculate your position size using pips:

  1. Determine the amount of capital you’re willing to risk on each trade. For example, if you had $5,000 and you’re willing to risk 5% on a single position, this equates to $250 per trade and 20 trades before all your capital is gone
  2. Set your maximum acceptable loss using a stop-loss. If you’re going long on GBP/USD at 1.1500, you could place a stop-loss at 1.1400. This equates to a maximum loss of 100 pips
  3. Calculate your loss per pip. A standard lot is 100,000 units of base currency, giving you a $10 profit or loss per pip. A mini lot is 10,000 units of base currency, which would be $1 per pip. A micro lot is 1,000 units of base currency and worth $0.10 per pip movement

How to see your pip value in our platform

For our web trader and mobile trading apps, you’ll be able to see your pip value straight away in the deal ticket, automatically converted into your base currency. All you’ll need to do is:

  1. Choose your currency pair
  2. Decide whether to buy or sell
  3. Enter your position size or ‘quantity’

You’ll then be able to see your pip value for the trade.

Pip value on MT4

If you’re trading on MT4 instead, you can get an automatic MT4 trading value indicator, which determines the price value changes per pip based on your account deposit currency and expected trading lot size.

Learn more about trading with MT4

FAQs on pips in forex

How much is a pip worth?

A pip is worth 1/100 or 0.0001, it’s the standard unit of measurement in a forex quote.

Discover what forex is.

What determines a pip value?

A pip’s value is determined by the currency pair you’re trading, how large your position size is and the spot price at any given moment.

Learn about how to trade forex.

What is a pip value and lot? 

A lot is the minimum quantity of a security that can be traded – typically one lot is worth $100,000. The pip value of a standard lot is 0.0001, or $10.

Learn how to start forex trading.

Open an account today

Experience award-winning platforms with fast and secure execution.

Web Trader platform

Our sophisticated web-based platform is packed with features.

Economic Calendar