Introduction
When you start learning Forex trading, you will hear the word “pip” all the time. People will say things like “I made 50 pips today” or “The spread is 2 pips.” If you do not know what a pip means, you will feel lost very quickly.
The truth is that a pip is a very simple idea. It is just a way to measure how much a price moved. But because it sounds like a strange word, many beginners get confused. Do not worry. After reading this article, you will understand pips better than most new traders.
Let me explain pips in the easiest way possible.
What Does Pip Stand For?
Pip means “Percentage in Point.” But honestly, you do not need to remember that long name. Just remember that a pip is the smallest price move that a currency pair can make. Think of it like the smallest step a price can take.
For most currency pairs, a pip is 0.0001. That is one ten-thousandth of a dollar. It is a very tiny number. But when you trade large amounts of money, those tiny numbers turn into real profits and losses.
A Simple Example to Understand Pips
Let me give you a real example so you can see how pips work.
Take the currency pair EUR/USD. This pair tells you how many US dollars you need to buy one Euro. Let us say the price is 1.1050.
If the price moves up to 1.1051, that is a movement of 1 pip. If it moves to 1.1060, that is a movement of 10 pips. If it moves to 1.1150, that is a movement of 100 pips.
So a pip is simply the last number in the price. When you see 1.1050, the last two numbers “50” are the pips. When it changes to 1.1051, the pips changed from 50 to 51.
That is all a pip is. Nothing more complicated than that.
The Only Exception – JPY Pairs
There is one exception to this rule. Any currency pair that has Japanese Yen (JPY) in it works a little differently.
For pairs like USD/JPY or GBP/JPY, a pip is 0.01 instead of 0.0001. That is because the Yen is worth much less than other major currencies.
Let me give you an example. USD/JPY price might be 150.25. If it moves to 150.26, that is a movement of 1 pip. If it moves to 151.25, that is a movement of 100 pips.
So remember this rule:
- Most pairs: 1 pip = 0.0001
- JPY pairs: 1 pip = 0.01
Once you remember this small difference, you understand pips completely.
What is a Pipette?
Some brokers show an extra small number at the end of prices. They call this a pipette. A pipette is one tenth of a pip.
You might see a price written as 1.10505 instead of 1.1050. The last number “5” is the pipette. It is useful for very small price movements, but as a beginner you do not need to focus on pipettes too much.
Just know that 10 pipettes make 1 pip. That is enough for now.
Why Do Pips Matter to You?
Now you might be thinking, “Okay, I understand what a pip is. But why should I care?”
Good question. Here is why pips matter.
Your profit or loss in Forex is measured in pips. When you make money, you made a certain number of pips. When you lose money, you lost a certain number of pips.
For example, if you buy EUR/USD at 1.1050 and sell it at 1.1100, you made 50 pips. If you bought at 1.1050 and sold at 1.1020, you lost 30 pips.
Every trader talks about profits in pips. Your stop-loss is measured in pips. Your take-profit is measured in pips. Everything in Forex comes back to pips.
If you do not understand pips, you cannot set proper stop-loss levels. You cannot calculate how much money you might make or lose. You cannot talk to other traders. So learning about pips is not optional. It is the first real step.
How to Calculate the Value of a Pip
Here is where many beginners get confused. But I will make it very simple.
The value of one pip depends on two things:
- The currency pair you are trading
- The size of your trade (how many lots)
Let me break this down.
If you trade 1 standard lot: One pip is worth roughly $10
**If you trade 1 mini lot:** One pip is worth roughly $1
If you trade 1 micro lot: One pip is worth roughly $0.10 (ten cents)
**If you trade 1 nano lot:** One pip is worth roughly $0.01 (one cent)
Let me give you a real example.
You open a trade on EUR/USD with 1 micro lot. The price moves 50 pips in your favor. Your profit is 50 pips x $0.10 = $5. That is not a lot of money, but that is fine for a beginner.
If you opened the same trade with 1 standard lot, your profit would be 50 pips x $10 = $500. But please remember, if the price moves against you by 50 pips, you would lose $500 just as fast.
That is why starting with micro lots is much safer for beginners. You get to learn how pips work without risking too much real money.
Pip and Lot Size Together
Let me give you a table to make this crystal clear.
| Lot Type | Size | Value per Pip (approx) |
|---|---|---|
| Nano lot | 100 units | $0.01 |
| Micro lot | 1,000 units | $0.10 |
| Mini lot | 10,000 units | $1.00 |
| Standard lot | 100,000 units | $10.00 |
Most beginners should start with micro lots or nano lots. This way, even if the price moves 100 pips against you, you only lose $10. That is a comfortable amount to learn with.
A Real Trading Example
Let me walk you through a complete example so you see how pips, lots, and money all come together.
You have $200 in your trading account. You decide to trade EUR/USD. You look at the chart and think the price will go up.
The current price is 1.1050. You buy 1 micro lot (remember, 1 micro lot = $0.10 per pip). You set a stop-loss at 1.1000 (50 pips below) and a take-profit at 1.1150 (100 pips above).
Here is what happens in different scenarios.
Scenario one – price goes up to your take-profit:
You made 100 pips. 100 pips x $0.10 = $10 profit. Not a huge profit, but you made money.
Scenario two – price goes down to your stop-loss:
You lost 50 pips. 50 pips x $0.10 = $5 loss. You lost only $5. Your account goes from $200 to $195. You are still fine.
Scenario three – you did not use a stop-loss and price drops 200 pips:
You lost 200 pips. 200 x $0.10 = $20 loss. That is still not terrible. But if you had used a mini lot instead, you would have lost $200. That would wipe out your entire account.
Do you see why starting with micro lots is so important? Pips are small, but they add up fast when you trade larger lot sizes.
What is a Pip in Different Account Currencies
Your trading account might be in US dollars, or it might be in another currency like Euros or British Pounds. The pip value changes a little depending on your account currency.
Most beginner accounts are in US dollars, so you do not need to worry about this too much. Your broker will automatically calculate everything for you. When you open a trade, the platform will show you the pip value in your account currency.
But if you ever trade a different currency pair or have an account in a different currency, just remember that the numbers above change slightly. Your broker’s platform will always show you the correct numbers.
Common Mistakes Beginners Make With Pips
I have seen many beginners make the same mistakes with pips. Let me list them so you can avoid them.
Mistake one – ignoring pip value when choosing lot size
A new trader sees that the price moved 100 pips and thinks they would have made $100. But they forget that pip value depends on lot size. If they were trading micro lots, 100 pips is only $10. Always check your pip value first.
Mistake two – setting stop-loss too tight
Some beginners set a 5 pip stop-loss because they do not want to lose much money. But prices move up and down by 5 pips all the time. A tight stop-loss will get hit very often, and you will lose money slowly from many small losses.
Mistake three – setting stop-loss too wide
On the other hand, some beginners set a 200 pip stop-loss. That is so wide that you will lose a lot of money if the trade goes wrong. Find a balance. For beginners, 30 to 50 pips is often a good stop-loss distance.
Mistake four – forgetting about JPY pairs
A trader learns that 1 pip is 0.0001 and forgets that JPY pairs use 0.01. Then they look at USD/JPY and get confused. Always check which pair you are trading.
How Many Pips Can a Beginner Expect to Make?
This is a question almost every beginner asks. The honest answer is that you should not focus on pips at first. Focus on learning first.
But to give you a realistic idea, a good beginner trader might aim for 10 to 30 pips per day on average. Some days you will make more. Some days you will lose pips. That is normal.
Do not believe anyone who says they make 500 pips every day. That is not real. That is someone trying to sell you something. Slow and steady is the real path.
Conclusion
A pip is just a measurement of price movement. For most pairs, 1 pip is 0.0001. For JPY pairs, 1 pip is 0.01. The value of each pip depends on your lot size. Micro lots give you $0.10 per pip. Standard lots give you $10 per pip.
Start with micro lots so your pips do not cost too much money. Always use a stop-loss to protect your account. And remember that making 30 pips a day with small lot sizes is better than making 300 pips one day and losing 500 pips the next day.
Pips are your friend once you understand them. Take your time. Practice on a demo account. Watch how pips move. Within a few weeks, you will not even have to think about what a pip means. It will feel natural.
