What is Pip (Forex)?
A pip ("percentage in point") is the smallest standard price increment for a currency pair, typically the fourth decimal place (0.0001) for most pairs or the second decimal place (0.01) for pairs involving the Japanese Yen.
Definition
Forex traders use pips to measure price movements without ambiguity. For most major pairs (EUR/USD, GBP/USD, USD/CAD, etc.), one pip equals 0.0001 — so a move from 1.0850 to 1.0855 is a 5-pip move. For pairs involving the Japanese Yen (USD/JPY, EUR/JPY, GBP/JPY), one pip equals 0.01 because the yen trades in larger numerical units — a USD/JPY move from 150.00 to 150.50 is a 50-pip move. Some brokers now quote prices to one extra decimal place (a "pipette," 0.00001), giving more precision on small movements; these are usually shown as a smaller subscript digit. For retail forex traders, pip values are how positions and stops are sized — a "20-pip stop loss" means the trade closes if the rate moves 20 pips against you.
Worked example
You buy EUR/USD at 1.0850 with a 20-pip stop loss. Your stop is at 1.0830 (1.0850 − 0.0020). If you bought a "standard lot" (100,000 EUR), each pip is worth $10, so a 20-pip stop loss means a maximum loss of $200 plus spread. For USD/JPY, the same 20-pip stop loss at 150.00 would mean your stop is at 149.80 — different decimal place, same concept.
Why it matters
Pips matter for traders, not casual travelers. If you're reading forex news that says "EUR/USD rallied 80 pips on the ECB decision," that's a move of about 0.8% — meaningful but not dramatic. Casual currency-converter users can safely ignore pips entirely; they're a unit for active traders sizing risk on leveraged positions.
Live currency converter
See pip (forex) in action with live rates.
Frequently asked questions
How much money is one pip worth?
It depends on position size. For a "standard lot" of 100,000 units, one pip ≈ $10 on most pairs. For a "mini lot" (10,000 units), one pip ≈ $1. For a "micro lot" (1,000 units), one pip ≈ $0.10. Most retail forex brokers let you trade in micro or mini lots; institutional traders use standard lots or larger.
What is a "pipette"?
A pipette is one-tenth of a pip — 0.00001 for most pairs or 0.001 for yen pairs. Brokers added this fifth decimal place (or third for JPY) in the late 2000s to compete on tighter spreads. Pipettes don't affect strategy logic, just price precision.
Do pips matter for travelers?
Not really. If you're converting $1,000 to euros, a 5-pip difference is about $0.50 — negligible. Pips matter for leveraged trading where small moves are amplified by 10x, 50x, or 100x leverage.
Related terms
Spread (Forex)
The spread is the difference between the buy (ask) price and the sell (bid) price of a currency. For retail customers, this gap is the primary way exchanges, banks, and brokers earn revenue — often disguised as a "commission-free" service.
Mid-Market Rate
The mid-market rate is the midpoint between the buy (bid) and sell (ask) price of a currency in the global interbank market. It is the fairest reference rate available and what Google, Reuters, Bloomberg, and Wise all display as "the exchange rate."
Cross Rate
A cross rate is the exchange rate between two currencies, neither of which is the US Dollar. Examples include EUR/GBP, AUD/JPY, and CAD/CHF. They are quoted directly even though most underlying liquidity flows through USD legs.