What is a pip?

Currency prices typically move in such tiny increments that they are quoted in pips or percentage in point. In most cases, a pip refers to the fourth decimal point of a price that is equal to 1/100th of 1%.

Calculating the value of a pip

The value of a pip varies based on the currency pairs that you are trading and depends on which currency is the base currency and which is the counter currency.

So, using the same example:

  • You buy 10,000 euros against the U.S. dollar (EUR/USD) at 1.10550 and you earn $1 for every pip increase in your favor. If you sold at 1.10650 (a 10-pip increase), you would make $10.
  • If the above circumstances were the same except that you sold at 1.10450 (a ten-pip decrease), you would lose $10.

Let’s look at an example with the U.S. dollar as the base currency, as in USD/JPY In this case, the value of one pip depends on the USD/JPY exchange rate.

So, using the same example:

  • You buy 10,000 U.S. dollars against the Japanese yen at 106.20 and you earn $0.94 for every pip increase in your favor. If you sold at 106.40 (a 20-pip increase), you would make $18.80.
  • If the above circumstances were the same except that you sold at 106.00 (a 20-pip decrease), you would lose $18.80.

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