Pip

"Percentage in point" — the smallest standardized unit of price movement in a forex pair, typically the fourth decimal place for most pairs and the second decimal place for JPY pairs.

A pip is the standard unit for measuring exchange rate movements in forex. For most currency pairs (EUR/USD, GBP/USD, AUD/USD), one pip is 0.0001 — the fourth decimal place. A move from 1.1050 to 1.1051 is one pip. For JPY pairs (USD/JPY, EUR/JPY), one pip is 0.01 — the second decimal place — because yen are quoted in larger whole numbers.

Many modern brokers now quote prices to a fifth decimal place, called a "pipette" or fractional pip, for greater precision. The monetary value of a pip depends on trade size. For a standard lot (100,000 units), one pip in EUR/USD equals approximately $10. For a mini lot (10,000 units) it's $1, and for a micro lot (1,000 units) it's $0.10.

Pips are central to position sizing and risk management. A trader targeting a 20-pip stop on a standard lot is risking $200. A strategy that earns an average of 8 pips per trade with a 3-pip spread is capturing a net 5 pips — understanding this relationship between gross edge and transaction cost is essential before deploying any forex strategy.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.