Open any forex chart and you’ll see prices with four or five decimal places: EUR/USD at 1.08452, GBP/USD at 1.27310. Traders don’t talk about those moves in cents. They talk in pips, and until the word clicks, almost every forex conversation sounds like code.
A pip is the standard unit of price movement
For most currency pairs, one pip is the fourth decimal place: 0.0001. If EUR/USD goes from 1.0845 to 1.0855, it has moved 10 pips.
The big exception is the Japanese yen. Because one yen is worth so little, yen pairs are quoted with two decimals, and a pip is the second decimal place: 0.01. USD/JPY moving from 151.20 to 151.50 is a 30-pip move.
Many brokers show one more digit than that — the fifth decimal on EUR/USD, the third on USD/JPY. That extra digit is a pipette, a tenth of a pip. It’s useful for precise pricing, but it’s also the reason beginners sometimes misread a 2-pip spread as 20.
Lots: how much currency you’re trading
Pips tell you how far price moved. Lot size tells you how much that movement is worth. Forex positions are measured in units of the base currency (the first one in the pair):
- Standard lot — 100,000 units
- Mini lot — 10,000 units
- Micro lot — 1,000 units
Working out pip value
When the US dollar is the second currency in the pair (EUR/USD, GBP/USD, AUD/USD), the calculation is pleasantly simple: pip value = pip size × position size.
| Position | Units | Value of 1 pip on EUR/USD |
|---|---|---|
| 1 standard lot | 100,000 | $10 |
| 1 mini lot | 10,000 | $1 |
| 1 micro lot | 1,000 | $0.10 |
For pairs where the dollar comes first, like USD/JPY or USD/CHF, the pip value is calculated in the second currency and then converted back. With USD/JPY at 150.00, one standard lot is worth 0.01 × 100,000 = 1,000 yen per pip, which is about $6.67. Most trading platforms do this for you, but it’s worth doing once by hand so the number doesn’t feel like a black box.
Why this matters before you place a trade
Say you buy one mini lot of EUR/USD and set a stop loss 40 pips below your entry. If the stop is hit, you lose 40 × $1 = $40, plus the spread. Change that to a standard lot and the same 40 pips costs $400. Nothing about the chart changed — only the size.
That’s the habit worth building: decide how much of your account you’re willing to lose on one idea, measure the distance to your stop in pips, then pick the lot size that fits. Leverage makes it easy to open positions far larger than this method would allow, which is exactly where accounts get into trouble. Our guide to leverage, margin calls and stop outs picks up from here.
Size the position from your stop loss, not from how confident you feel.
Spreads are measured in pips too
The spread — the gap between the buy and sell price — is also quoted in pips. A 1.2-pip spread on a mini lot costs $1.20 the moment you open the trade. Spreads are usually tightest when the major markets overlap and widen in quiet hours; see the four forex trading sessions for when that happens. And when you’re ready to put it all together on a chart, reading candlesticks is the next skill to pick up.
