3-What Is A Pip in Forex

3/15/24, 1:39 PM What is a Pip in Forex? - BabyPips.
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What is a Pip in Forex?
What’s a pip?
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You’ve probably heard of the terms “pips,” “points“,

“pipettes,” and “lots” thrown around, and now we’re going
to explain what they are and show you how their values are
calculated.
Here is where we’re going to do a little math. Just a little bit.
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3/15/24, 1:39 PM What is a Pip in Forex? - BabyPips.com
Take your time with this information, as it is required knowledge for all forex
traders.
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Don’t even think about trading until you are comfortable with pip values and
calculating profit and loss.
What the heck is a Pip?

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The unit of measurement to express the change in value between two

currencies is called a “pip.”
If EUR/USD moves from 1.1050 to 1.1051, that .0001 USD rise in value is
ONE PIP.
A pip is usually the last decimal place of a price quote.
Most pairs go out to 4 decimal places, but there are some exceptions like
Japanese yen pairs (they go out to two decimal places).
For example, for EUR/USD, it is 0.0001, and for USD/JPY, it is 0.01.
What is a Pipette?
There are forex brokers that quote currency pairs beyond the standard “4 and
2” decimal places to “5 and 3” decimal places.

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They are quoting FRACTIONAL PIPS, also called “points” or “pipettes.”
If the concept of a “pip” isn’t already confusing enough for the new forex
trader, let’s try to make you even more confused and point out that a “point” or
“pipette” or “fractional pip” is equal to a “tenth of a pip“.
For instance, if GBP/USD moves from 1.30542 to 1.30543, that .00001 USD
move higher is ONE PIPETTE.
Here’s how fractional pips look like on a trading platform:
On trading platforms, the digit representing a tenth of a pip usually appears to

the right of the two larger digits.
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Here’s a pip “map” to help you to learn how to read pips…
How to Calculate the Value of a Pip
As each currency has its own relative value, it’s necessary to calculate the
value of a pip for that particular currency pair.
In the following example, we will use a quote with 4 decimal places.
For the purpose of better explaining the calculations, exchange rates will be
expressed as a ratio (i.e., EUR/USD at 1.2500 will be written as “1 EUR /
1.2500 USD”)
Example #1: USD/CAD = 1.0200
To be read as 1 USD to 1.0200 CAD (or 1 USD/1.0200 CAD)

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(The value change in counter currency) times the exchange rate ratio = pip
value (in terms of the base currency)
[.0001 CAD] x [1 USD/1.0200 CAD]
Or simply as:
[(.0001 CAD) / (1.0200 CAD)] x 1 USD = 0.00009804 USD per unit traded
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Using this example, if we traded 10,000 units of USD/CAD, then a one pip
change to the exchange rate would be approximately a 0.98 USD change in
the position value (10,000 units x 0.00009804 USD/unit).
We say “approximately” because as the exchange rate changes, so does the

value of each pip move.
Example #2: GBP/JPY = 123.00
Here’s another example using a currency pair with the Japanese Yen as the
counter currency.
Notice that this currency pair only goes to two decimal places to measure a 1
pip change in value (most of the other currencies have four decimal places).
In this case, a one pip move would be .01 JPY.

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(The value change in counter currency) times the exchange rate ratio = pip
value (in terms of the base currency)
[.01 JPY] x [1 GBP/123.00 JPY]
Or simply as:
[(.01 JPY) / (123.00 JPY)] x 1 GBP = 0.0000813 GBP
So, when trading 10,000 units of GBP/JPY, each pip change in value is worth
approximately 0.813 GBP.
How to Find the Pip Value in Your Trading

Account’s Currency
The final question to ask when figuring out the pip value of your position is,
“What is the pip value in terms of my trading account’s currency?”
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After all, it is a global market and not everyone has their account
denominated in the same currency.
This means that the pip value will have to be translated to whatever currency
our account may be traded in.
This calculation is probably the easiest of all; simply multiply/divide the

“found pip value” by the exchange rate of your account currency and the
currency in question.
If the “found pip value” currency is the same currency as the base currency in
the exchange rate quote:
Using the GBP/JPY example above, let’s convert the found pip value of .813
GBP to the pip value in USD by using GBP/USD at 1.5590 as our exchange
rate ratio.
If the currency you are converting to is the counter currency of the exchange
rate, all you have to do is divide the “found pip value” by the corresponding
exchange rate ratio:
.813 GBP per pip / (1 GBP/1.5590 USD)
Or
[(.813 GBP) / (1 GBP)] x (1.5590 USD) = 1.2674 USD per pip move

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So, for every .01 pip move in GBP/JPY, the value of a 10,000 unit position
changes by approximately 1.27 USD.
If the currency you are converting to is the base currency of the conversion
exchange rate ratio, then multiply the “found pip value” by the conversion
exchange rate ratio.
Using our USD/CAD example above, we want to find the pip value of .98 USD
in New Zealand Dollars. We’ll use .7900 as our conversion exchange rate
ratio:
0.98 USD per pip X (1 NZD/.7900 USD)
Or
[(0.98 USD) / (.7900 USD)] x (1 NZD) = 1.2405 NZD per pip move
For every .0001 pip move in USD/CAD from the example above, your 10,000
unit position changes in value by approximately 1.24 NZD.

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Even though you’re now a math genius–at least with pip values–you’re
probably rolling your eyes back and thinking, “Do I really need to work all this
out?”
Well, the answer is a big fat NO. Nearly all forex brokers will work all this out
for you automatically, but it’s always good for you to know how they work it
out.
If your broker doesn’t happen to do this, don’t worry! You can use our Pip
Value Calculator! Aren’t we awesome?!
In the next lesson, we will discuss how these seemingly insignificant amounts
can add up.
Next Lesson
What is a Lot in Forex?
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3/15/24, 1:39 PM What is a Pip in Forex? - BabyPips.

Preschool How Do You Trade Forex?

What is a Pip in Forex?

You’ve probably heard of the terms “pips,” “points“,

Here is where we’re going to do a little math. Just a little bit.

Best MT4 Broker Follow 6k+ Pro Traders

What the heck is a Pip?

Best MT4 Broker Follow 6k+ Pro Traders

The unit of measurement to express the change in value between two

A pip is usually the last decimal place of a price quote.

For example, for EUR/USD, it is 0.0001, and for USD/JPY, it is 0.01.

Best MT4 Broker Follow 6k+ Pro Traders

They are quoting FRACTIONAL PIPS, also called “points” or “pipettes.”

Here’s how fractional pips look like on a trading platform:

On trading platforms, the digit representing a tenth of a pip usually appears to

Here’s a pip “map” to help you to learn how to read pips…

How to Calculate the Value of a Pip

In the following example, we will use a quote with 4 decimal places.

Example #1: USD/CAD = 1.0200

To be read as 1 USD to 1.0200 CAD (or 1 USD/1.0200 CAD)

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[.0001 CAD] x [1 USD/1.0200 CAD]

We say “approximately” because as the exchange rate changes, so does the

Example #2: GBP/JPY = 123.00

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[.01 JPY] x [1 GBP/123.00 JPY]

[(.01 JPY) / (123.00 JPY)] x 1 GBP = 0.0000813 GBP

How to Find the Pip Value in Your Trading

This calculation is probably the easiest of all; simply multiply/divide the

.813 GBP per pip / (1 GBP/1.5590 USD)

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0.98 USD per pip X (1 NZD/.7900 USD)

Best MT4 Broker Follow 6k+ Pro Traders

What to Read Next...

Best MT4 Broker Follow 6k+ Pro Traders

" This constant unproductive preoccupation

LEARN FOREX COMPANY FOREX TOOLS

How to Trade Forex About MarketMilk™

Forex Quizzes Contact Economic Calendar

Forex Glossary Newsletter Position Size Calculator

Forex Margin 101 Testimonials "Back to Breakeven" Calculator

Technical Analysis 101 FAQ Pip Value Calculator

Risk Management 101 Subscribe Pivot Point Calculator

Copyright © 2024 BabyPips.com LLC. All rights reserved.

Best MT4 Broker Follow 6k+ Pro Traders

You might also like