Measuring moves in pips
The unit that measures every move in forex
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The smallest move in forex has a name. Learn to read it, and you can price any trade before you place it.
A euro moves a fraction of a cent, and you make — or lose — real money. That fraction has a name: the pip. It is the smallest unit of price movement in forex, and every profit, loss, and spread you will ever quote is measured in them.
You have probably heard traders throw around “pips,” “points,” “pipettes,” and “lots.” Here is exactly what they are, and how their values are calculated.
Yes, there is arithmetic ahead. Sit with it for ten minutes — it is the one calculation you will repeat on every position you ever open, and a trader who cannot size a pip cannot size a risk.
What a pip actually is
A pip is the step size of a pair’s price — the smallest amount a standard quote is allowed to move.
Put EUR/USD at 1.0850. The next price up the ladder is 1.0851, and nothing exists in between. That single step — 0.0001 — is one pip.
So the pip is simply the last digit a broker prints on a standard quote. Find that digit and you have found the pip.
Almost every pair is printed to four decimals. The yen is the standing exception: because one euro buys well over a hundred yen, a fourth decimal would be meaningless, so yen pairs stop at two.
That gives you two numbers to carry around: 0.0001 on a normal pair, 0.01 on anything quoted in yen.
On the desk, nobody says the whole price. The big figure — also called the handle — is the leading part everyone already knows: the “1.10” in EUR/USD at 1.1050. Traders drop it and just call the pips — “fifty bid, fifty-one offered.”
What is a Pipette?
Look at a live platform and you will usually see one digit more than the four — five decimals on a normal pair, three on a yen pair.
That extra digit is a pipette — you will also hear it called a point or a fractional pip. Three names, one thing.
It splits the pip into ten. EUR/USD ticking from 1.08504 to 1.08505 has moved one pipette — a tenth of the step you just learned to read.
Why bother? Because a broker who quotes pipettes can shave a spread to 0.7 pips instead of rounding it to 1. The extra digit is there to price competition more finely.
On most platforms that last digit is drawn smaller than the rest, or raised like a footnote, so the pips stay easy to read at a glance.
Working out what one pip is worth
A pip is a move in the counter currency — the one on the right. What you want to know is what that move is worth in the base currency, the one on the left, and the rate is what converts between them.
Which makes the whole thing one line:
pip value per unit = pip size ÷ the rate. Multiply that by your position size and you have what a pip pays you.
Do it once per pair and you are done. Two worked examples follow — one normal pair, one yen pair.
A normal pair: USD/CHF at 0.8950
One US dollar buys 0.8950 Swiss francs. The pip is the fourth decimal, so a pip is 0.0001 CHF.
Divide the pip by the rate and the answer comes out in the base currency, US dollars:
0.0001 CHF ÷ 0.8950 = 0.00011173 USD per unit
That is the per-unit figure. Now scale it to the position.
On 10,000 units: 10,000 × 0.00011173 = about 1.12 USD a pip. Ten pips in your favour is roughly 11 dollars; ten against is the same number in the other direction.
It is “about” rather than exactly, because the rate sits in the denominator: as USD/CHF moves, the value of its own pip moves with it.
A yen pair: EUR/JPY at 162.50
Same single line, and the only thing that changes is which digit counts as the pip.
One euro buys 162.50 yen. Yen pairs stop at two decimals, so here a pip is 0.01 JPY — a hundred times larger than the 0.0001 you just used.
Divide it by the rate, and the answer arrives in euros:
0.01 JPY ÷ 162.50 = 0.00006154 EUR per unit
And scaled to the same 10,000-unit position:
10,000 × 0.00006154 = about 0.62 EUR a pip. Note what happened: the yen pip is a hundred times bigger as a number, yet it is worth less than the franc pip — because the rate it is divided by is a hundred times bigger too.
Counting decimals tells you nothing about money. A yen pip looks a hundred times larger written down — 0.01 against 0.0001 — and on the same size it pays less. Only pip size ÷ rate settles it.
Converting a pip into your account currency
Both answers so far are in the base currency — dollars for USD/CHF, euros for EUR/JPY. Your account is denominated in one currency only, so there is one step left.
And it is a single step, not a set of cases to memorise:
Take the pip value you found, and price its currency in yours. If a euro is worth 1.0850 of your dollars, then a pip worth 0.62 euros is worth 0.62 × 1.0850 of your dollars. That is the whole rule — the arithmetic below is just that sentence twice.
The pip came out in euros and your account counts dollars, so you need the price of a euro in dollars — EUR/USD, quoted exactly that way round.
EUR/JPY gave you 0.6154 EUR a pip. With EUR/USD at 1.0850:
0.6154 EUR × 1.0850 = 0.6677 USD
So a pip on that 10,000-unit EUR/JPY position is about 0.67 USD in your account.
The rate was quoted with your account currency on the right, so you multiplied. When it is quoted the other way round, you divide — next example.
Pairs are quoted the way the market quotes them, not the way your account would prefer. If your currency sits on the left of the rate, divide instead of multiply.
USD/CHF gave you 1.1173 USD a pip. Your account is in New Zealand dollars, and the market quotes NZD/USD — at 0.5850:
1.1173 USD ÷ 0.5850 = 1.9099 NZD
A pip on 10,000 units of USD/CHF is about 1.91 NZD to you.
One sanity check saves you every time: a kiwi dollar is worth less than a US dollar, so the answer in kiwi has to be the bigger number. If it came out smaller, you multiplied where you should have divided.
By now you can work a pip value out by hand — a genuinely useful skill, and one most traders never bother to learn. But you are probably wondering: do I really have to do this on every trade?
The answer is no. Nearly all forex brokers calculate pip values for you automatically. It is still worth knowing how the number is built, so you can sanity-check what your platform shows you.
A pip is the last decimal of a standard quote — 0.0001, or 0.01 on a yen pair. A pipette is a tenth of one, the extra digit your platform prints. Value per unit is pip size ÷ rate: on 10,000 units that is about 1.12 USD a pip on USD/CHF at 0.8950, about 0.62 EUR a pip on EUR/JPY at 162.50.
Next up: how these seemingly tiny amounts stack up into real money.
See you on the desk. — AI Mentor