Pip
The standard smallest price increment in a currency pair — usually 0.0001.
Also called: pips · percentage in point · pipette
Written by Javier Sánchez Ros
In plain language
For most pairs a pip is the fourth decimal place. EUR/USD moving from 1.0850 to 1.0851 is a one-pip move.
Yen pairs are the main exception. Because they are quoted to two decimals, a pip there is 0.01.
Many brokers quote a fifth decimal, called a pipette or fractional pip, which is a tenth of a pip. It is easy to misread a quote by a factor of ten.
Worked through
The same 30-pip stop on EUR/USD and on USD/JPY
- EUR/USD entry
- 1.0850
- Stop 30 pips below
- 1.0820
- USD/JPY entry
- 151.20
- Stop 30 pips below
- 150.90
Both stops are 30 pips, but they are not the same distance on the price ladder. On EUR/USD, 30 pips is 0.0030 of price. On USD/JPY it is 0.30, a hundred times larger as a number, because the yen pair is quoted to two decimals rather than four.
This is why the pip, not the decimal, is the unit worth thinking in. Thirty pips is thirty pips on both, and both cost you the same if your position is sized so that a pip is worth the same amount.
The trap is the fifth decimal. A broker showing EUR/USD as 1.08502 is quoting pipettes, and a stop placed 30 away on that screen is 3 pips, not 30. A trade sized for a 30-pip stop but stopped out at 3 loses a tenth of what was planned, which sounds harmless until the same mistake runs the other way and a 300-pip stop gets sized as 30.
Why it matters
Pips are the unit your stop distance is measured in, and stop distance is what your position size is calculated from. Getting the pip definition wrong scales the entire trade incorrectly.
Common mistakes
- Applying the 0.0001 pip definition to yen pairs.
- Confusing pipettes with pips and sizing ten times too large.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
How much one pip of movement is worth in your account currency, given your position size.
The standardized unit of trade size in forex.
Two currencies quoted against each other, showing how much of one buys the other.
The gap between your entry and your stop loss — your risk on a single unit.
The amount of an asset you buy or sell in a single trade.