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Home ... Pips in forex

Pips in forex
In trading, a ‘pip’ is a very small price
movement. The term is short for
‘percentage in point’. A pip is
essentially the smallest move that a
currency could make in the forex
market and it is an important unit of
measurement in currency trading.

Traders use pips to measure price

movements in currencies.
Determining the number of pips in a
certain price movement is a
straightforward process, although it
depends on the forex pair being
traded.

QUICK LINK TO CONTENT:

1. What are ‘pips’ in forex 5. Pip value calculator →

trading? →
6. How to calculate
2. Pips and pipettes → pips →

3. How to use pips in 7. What causes pip

forex trading → values to change? →

4. Forex position size 8. Summary: pips in

calculator → trading →

What are ‘pips’ in forex

trading?
In forex trading, the smallest price change is the last
decimal point. Given that most major currency pairs,
such as those involving USD, EUR and GBP, are
priced to four decimal places, a pip in this scenario
is a price movement of 0.0001. For example, if
GBP/USD moved from 1.4000 to 1.4001, it has moved
by one pip. Comparatively, currency pairs using the
Japanese yen (JPY) are only quoted to two decimal
places. In this case, a pip is a price movement of
0.01. For instance, if GBP/JPY moved from 150.00 to
150.05, it has moved by five pips.

You can trade on the forex market through financial

instruments such as spread betting and trading
CFDs (contracts for difference). This involves
opening positions based on the prediction that one
currency will strengthen against another. For
example, for every pip or point that a currency’s
value varies, this will result in profits or losses for the
trader, depending on the direction that the market
heads.

Pips and pipettes

To view an even tighter spread, currency pairs can
be given in fractional pips, or ‘pipettes’, where the
decimal place is at 5 places, or 3 places if dealing
JPY. A pipette is therefore equal to one tenth of a
pip.

EUR/USD example:

EUR/USD = 1.60731

EUR/USD = 1.6073
31 – 0.0003 is the pip

EUR/USD = 1.607311 – 0.00001 is the pipette

The fourth decimal place is the pip, and the fifth

decimal place is the pipette.

How to use pips in forex

trading
If a trader enters a long position on GBP/USD at
1.5000 and it moves to 1.5040, the price has moved
40 pips in the trader’s favour, potentially leading to a
profit if the trade is closed. On the other hand, if the
trader goes long on GBP/USD at 1.5000 and the
exchange rate falls to 1.4960, the price has moved
40 pips against the trader, potentially leading to a
loss on the trade if it is closed.

Similarly, if a trader goes long on GBP/JPY at 145.00

and it moves to 145.75, the price has moved 75 pips
in the trader’s favour. If the exchange rate goes
against the trader, and GBP/JPY falls to 144.25, the
price would have moved 75 pips against the trader.

As well as measuring price movements and profits

and losses, pips are also useful for managing risk in
forex trading and for calculating the appropriate
amount of leverage to use. For example, a trader can
use a stop-loss order to set the maximum amount
he is willing to lose in terms of pips on a trade.
Having a stop-loss in place will help to limit losses if
the currency pair were to move in the wrong
direction.

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Forex position size

calculator
Pips can be used for the calculation of position size.
If a trader’s combined position sizes are too large
and they experience a number of losses, their
capital could be wiped out. Therefore, trading with
an appropriate position size is essential.

There are several steps involved in calculating

position size:

1. A trader must determine the amount of capital

they are willing to risk per trade. If this is 1% per
trade, they could make a minimum of 100 trades
before their capital is wiped out. If the trader’s
account has a balance of $5,000 and they are
willing to risk 1% per trade, this equates to $50
per trade.

2. Traders can determine a stop-loss in pips. For

example, if a trader goes long on EUR/USD at
1.3600, they could place a stop-loss at 1.3550.
This stop-loss equates to 50 pips.

3. The last step depends on what lot size is being

traded. A standard lot refers to 100,000 units of
base currency and equates to $10 per pip
movement. A mini lot is 10,000 units of base
currency and equates to $1 per pip movement. A
micro lot is 1,000 units of base currency and
equates to $0.10 per pip movement.

If the trader risks 1% of his $5,000 balance per trade

for a micro lot ($0.10 per pip movement), the
position size would be $50 / (50 pips x $0.10) = 10.
Therefore, the trader’s position size would be 10
micro lots.

Pip value calculator

How much profit or loss a pip of movement
produces is dependent on the value of each pip. In
order to learn how to work out pip value, we need to
know the following three things: the currency pair
being traded, the trade amount, and the spot price.

Pip value formula

The formula to calculate the value of a pip for a four-
decimal currency pair is:

Pip value = (0.0001 x trade amount) / spot

price

How to calculate pips

Example 1:

Let’s say a trader places a $100,000 long trade on

USD/CAD when it’s trading at 1.0548.

The value of USD/CAD rises to 1.0568. In this

instance, one pip is a movement of 0.0001, so the
trader has made a profit of 20 pips (1.0568 – 1.0548
= 0.0020 which is the equivalent of 20 pips).

The pip value in USD is (0.0001 x 100,000) / 1.0568 =

$9.46

To calculate the profit or loss on the trade, we

multiply the number of pips gained by the value of
each pip.

In this example, the trader made a profit of 20 x

$9.46 = $189.20.

Example 2:

Let’s say the trader places a $10,000 long trade on

USD/CAD when it’s trading at 1.0570. 

The value of USD/CAD falls to 1.0540. In this

instance, one pip is a movement of 0.0001, so the
trader has made a loss of 30 pips (1.0570 – 1.0540 =
0.0030 which is the equivalent of 30 pips).

The pip value in USD is (0.0001 x 10,000) / 1.0540 =

$0.94

In this example, the trader made a loss of 30 x $0.94

= $28.20.

Pip value indicator on MT4

Pip values can be difficult and take time to calculate,
while some traders would rather be focusing on
perfecting their forex trading strategy. This is why
they have developed a pip value indicator for
MetaTrader 4, an internationally recognised trading
platform that we host via our own platform. A wide
range of MT4 indicators are available to download
separately to your account.

Forex pips can be calculated using the formula

above and displayed on our own trading platform,
Next Generation, in the form of forex price charts
and graphs. These can be customised with our
drawing tools. We have a wide range of technical
indicators to help you with your forex trading
strategy.

What causes pip values

to change?
The base value of a trader’s account will determine
the pip value of many different currency pairs. For a
USD-denominated account, which is common for
the most traded currency pairs, if the currency pair
has USD as the second (quote) currency, the pip
value will always be $10 on a standard lot, $1 on a
mini lot and $0.10 on a micro lot.

Pip values would only change if USD was either the

first (base) currency in the currency pair, or not
involved in the pair, and if the value of USD moved
significantly by more than 10% in either direction.

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Summary: pips in trading

In the forex market, traders use pips to measure
price movements and profit and loss. Pips also play
an important role in risk management. For example,
a trader can identify a stop-loss for a trade in terms
of pips, which can limit the potential losses on a
losing trade. Pips can help forex traders to calculate
the most appropriate position size in order to
ensure that they are not taking excessive risks by
opening positions that are too large with the
potential for great losses. Learn more about
developing your own forex trading strategy, such as
swing trading, day trading and forex scalping.

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Spread bets and CFDs are complex instruments and come

with a high risk of losing money rapidly due to leverage. 71%
of retail investor accounts lose money when spread
betting and/or trading CFDs with this provider. You should
consider whether you understand how spread bets and
CFDs work and whether you can afford to take the high risk
of losing your money.

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