What Is a Pip? Pricing, Lots, and Why Pip Value Floats

The definition everyone gives — and where it stops

A pip — "percentage in point" — is the standard smallest increment a currency pair is quoted in. For the large majority of pairs that is the fourth decimal place: 0.0001. When EUR/USD moves from 1.0850 to 1.0851, that is one pip.

There is one exception worth burning into memory: JPY pairs are quoted to two decimals, so a pip is 0.01. USD/JPY moving from 155.00 to 155.01 is one pip, not a hundred.

Almost every "what is a pip" article stops here, as if the definition were the lesson. It isn't. A pip is a unit of price. What you actually need before you place a trade is a pip's worth in money — and that is where most beginners are quietly wrong.

Pipettes: the fifth decimal that trips people up

Modern brokers quote one more digit than the pip — a fractional pip, or "pipette," equal to one tenth of a pip. It shows up as a fifth decimal on most pairs (a third decimal on JPY pairs), often in a smaller font: 1.08505. The trap is simple arithmetic: a move you read as "5" on the platform may be five pipettes — half a pip — not five pips. Count the decimal place, not the last digit.

Why pip value is not a fixed number

Pip value — the cash a one-pip move puts into or takes out of your account — depends on two things: how many units you're trading and which currency is the quote currency (the second one in the pair).

Position size is measured in lots:

• Standard lot — 100,000 units of the base currency
• Mini lot — 10,000 units
• Micro lot — 1,000 units

When the quote currency is the US dollar — EUR/USD, GBP/USD, AUD/USD, NZD/USD — the pip value is fixed in dollars, because the price is already denominated in dollars. One pip is 0.0001 × units:

• Standard lot: 0.0001 × 100,000 = $10.00 per pip
• Mini lot: $1.00 per pip
• Micro lot: $0.10 per pip

When the quote currency isn't USD, the value floats

For pairs where the dollar is the base currency — USD/JPY, USD/CAD, USD/CHF — the pip is measured in the quote currency and must be converted back into dollars at the current rate:

Run USD/JPY at 155.00 for one standard lot: (0.01 ÷ 155.00) × 100,000 = $6.45. Now let the rate climb to 160.00 and the same one-pip move is worth (0.01 ÷ 160.00) × 100,000 = $6.25. Nothing about your position changed — but the dollar value of a pip did, purely because price moved. That is what "the value floats" means, and it's why you recompute rather than assume.

USD-quoted pairs lock to $10. The USD-base pairs each land somewhere else — and move as their rate moves.

Cross pairs: two conversions, no shortcuts

A cross is a pair with no US dollar in it — EUR/GBP, EUR/JPY, GBP/JPY. The pip value is first expressed in the quote currency, then converted to your account currency. On EUR/GBP one standard-lot pip is 0.0001 × 100,000 = £10, which you then convert to dollars at the GBP/USD rate. There is no clean round number to lean on here. Compute it.

Why any of this matters: it sets your real risk

Pip value is the bridge between a chart distance and a cash amount. Your stop is some number of pips away; your risk in money is stop-distance × pip value × lots. Position sizing (covered in lesson 7-2) inverts that to solve for size. If you assume $10 per pip on USD/JPY when it is really $6.45, every position you size is roughly a third too large — and so is the loss when the stop is hit.

This is the quiet way accounts get hurt: not a dramatic blow-up, but a steady mis-sizing because a "pip" was treated as a fixed dollar amount when it never was.

See it move

The calculator below is the same one from the course. Switch the pair and the lot size and watch the per-pip value change. The point to feel: USD-quoted pairs snap to round numbers; the USD-base pairs drift with their rate.