What Is a Pip in Forex? (With Examples)
The pip is the unit every forex cost and profit is measured in. Understand it and you understand your trade.
The basic definition
A pip is the smallest standard price move, usually the fourth decimal of a currency pair (0.0001). For USD/JPY it is the second decimal (0.01). A 'pipette' is one-tenth of a pip, shown as a fifth decimal.
What a pip is worth
For a standard lot (100,000 units), one pip is roughly $10 on most USD-quoted pairs. For a mini lot (10,000) it is about $1, and for a micro lot (1,000) about $0.10. The exact value depends on the quote currency and your account currency.
Pips in practice
If EUR/USD moves from 1.1000 to 1.1020, that is a 20-pip move. A 1-lot long position gains about $200; a 1-lot short loses about $200. This is why spread (measured in pips) and position size directly determine your P&L.
Why it matters for costs
When a broker quotes a 0.8-pip spread, you are starting 0.8 pips underwater on every trade. On a standard lot that is about $8 of cost before any commission — the reason low spread matters.
Related glossary terms
New to the jargon here? These plain-English definitions will help.