# What is a pip in Forex?

Last Updated on September 17, 2020 by Alphaex Capital ## What is a pip?

From time to time as you are learning the lingo of trading the forex markets you may have come across a small word, called pip.

A pip is the lowest value quoted in a currency pair.

It is how much a currency pair goes up and down by.

Traders refer to a pip when they talk about profits and losses when trading as it standardises their results with others.

The true meaning of pip is that it stands for percentage in price.

The value of a pip is the 4th digit after the decimal.

This is because the forex rates are measured in ten-thousandths of a unit. For example, if the Euro costs \$ 1.1324, that means it costs one dollar and 13.24 cents.

Making a profit on forex trading means watching the fluctuations of pips.

Continuing the example from above, if the price of the Euro were to change to 1.1330, it would have risen by 6 pips.

1.1324

+6 pips

1.1330

Conversely, if it had dropped to 1.1320, it would have dropped by 4 pips.

1.1324

-4 pips

1.1320

Quite easy, isn’t it?

## How to Calculate the Value of a Pip

I rule of thumb is to base how much value of a pip is based on the EUR/USD conversion – roughly \$10 per pip per lot.

However, each pair have their own true value and it is important to understand what they are roughly so you can manage your risk more accurately.

For example, the GBP/USD is 1.4000; which translates to for every £1 GBP to \$1.40 USD.

To calculate this we use the expression below:

Value Increment In The Currency Pair (1 pip) / Exchange Rate * 1 Base Rate = Pip value in base currency.

So put this into our example:

Value Increment In Currency (1 pip/0.0001) / Exchange Rate (1.4000) * 1 Base Rate = Pip value in base currency.

=

(0.0001/1.4000)*1 = 0.00007143 per unit traded.

(Now, we discuss what units are later on in our “What Is A Lot” lesson)

So, if we traded 1 lot the value per pip would be:

0.00007143 * 100,000 = £7.14 change per pip. So every time the GBP/USD moves, the value is roughly £7.14 per pip.

So if it goes up 10 pips that is an increase of £71.40.

If it goes down 10 pips that is a decrease of £71.40.

Another example we should use is with the Japanese Yen as the pip is only two decimal points in.

USD/JPY – in this example, a one pip move is only 0.01 move.

For example, the USD/JPY is 114.30; which translates to for every £1 USD to \$114.30 JPY.

To calculate this we use the expression below:

Value Increment In Currency (1 pip) / Exchange Rate * 1 Base Rate = Pip value in base currency.

So put this into our example:

Value Increment In Currency (1 pip/0.01) / Exchange Rate (114.30) * 1 Base Rate = Pip value in base currency.

=

(0.01/114.30)*1 = 0.0000875 per unit traded.

So, if we traded 1 lot the value per pip would be:

0.0000875 * 100,000 = \$8.75 change per pip. So every time the USD/JPY moves, the value is roughly \$8.75 per pip.

So if it goes up 10 pips that is an increase of \$87.50.

If it goes down 10 pips that is a decrease of \$87.50.

It’s as easy as that!

Fortunately, thanks to technology and services offered by brokers nowadays, you don’t have to formulate these any more. They are already done within your account and already done in your account currency too!

## What Is A Pip Quiz

Take our “What Is A Pip” quiz below to ensure that this lesson is well and truly taken in.

Before you progress onto the next page, you must get over 50% of the quiz correct. That way, you have retained the information and can continue building your knowledge on trading the forex markets.

0%

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0.0001
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#### How Many Pips Has This Example Gone Down By? 1.3000 -> 1.1500

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What Is A Pip: The Quiz!
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