Pip
The smallest standard price move in a currency pair - the unit almost every forex cost is measured in.
The smallest standard price move in a currency pair - the unit almost every forex cost is measured in.
For most pairs a pip is the fourth decimal place: a move from 1.0842 to 1.0843 is one pip. The exception is Japanese yen pairs, where the pip sits at the second decimal, because yen quotes carry only two places. Brokers also quote a pipette - a tenth of a pip, the fifth decimal - which is how '0.2 pip' spreads are advertised.
The pip only becomes money once you know your lot size. On a standard lot of a USD-quoted pair, one pip is worth about $10; on a mini lot, $1. That is why position sizing - deciding how many lots a given stop distance is worth - is the step that turns pip arithmetic into risk management. Count pips to measure distance, count dollars to decide whether the trade is affordable.
Worked example
You buy GBP/USD at 1.2715 and place a stop 30 pips below at 1.2685. On one standard lot that stop is roughly $300 of risk; on 0.1 of a lot it is $30. The chart pattern looked identical in both cases - only the dollars changed, because the lot size did.
Related terms and tools
Suggest a change
Spotted an error, an out-of-date number, or something we should improve? Tell us — the page title and address are attached to your email automatically.