# What is a Pip in Forex?

Here is where we do some math. Just a little

You may have heard of the terms “pips”, “points”, “pipettes” and “lots”. Now let me explain what that value is and show you how it is calculated.

Spend time with this information as it is a necessary knowledge for all foreign exchange traders.

Don't think about trading until you get used to the pip value and start calculating profit and loss.
What is it?
The unit of measure representing the change in value between two currencies is called the "pip".

If EUR / USD moves from 1.1050 to 1.1051, the increase in value of .0001 USD is ONE PIP.

Pip is usually the last decimal place in a price quote.

Most pairs come up to 4 digits after the decimal point, but with the same exception as the Japanese yen pair (the decimal point is up to 2 digits after the decimal point).

# What is a pipette?

There are forex brokers that quote currency pairs from standard “4 and 2” decimal places to “5 and 3” decimal places.

They cite FRACTIONAL PIPS, also called "points" or "pipettes."

If the concept of “pip” is not confusing enough for a new forex trader, it makes it more confusing and “point” or “pipette” or “fractional pip” is “one tenth of pip”.

For example, if GBP / USD moves from 1.30542 to 1.30543, that .00001 USD move is ONE PIPETTE.

How to calculate the value of pip
Each currency has its own relative value, so you need to calculate the pip value for that particular currency pair.

The following example uses quotation marks with four decimal places.

To better explain the calculation, the exchange rate is expressed as a percentage (ie, EUR / USD of 1.2500 is displayed as "1 EUR / 1.2500 USD").

Example # 1: USD / CAD = 1.0200

(Change value of counter currency) Multiply exchange rate ratio = Pip value (Base currency)

Or simply:

If you traded 10,000 units of USD / CAD using this example, the 1 pip change for the exchange rate would be approximately 0.98 USD change in position value (10,000 units x 0.00009804 USD / unit).
We say “approximately” because the value of each pip moves as the exchange rate changes.

Example # 2: GBP / JPY = 123.00
Here is another example of using Japanese Yen and currency pairs as counter currencies.

This currency pair only shifts to two decimal places to measure the change in one pip value (most other currencies have four decimal places). In this case, 1 pip move is .01 JPY.

(Change value of counter currency) Multiply exchange rate ratio = Pip value (Base currency)

[.01 yen] x [1 GBP / 123.00 yen]

Or simply:

[(.01 yen) / (123.00 yen)] x 1 GBP = 0.0000813 GBP

So, when trading GBP / JPY 10,000 units, the value of each pip change in value is around 0.813 GBP.

Find pip value in account name
The final question to ask when figuring out the pip value of a position is "How much is the pip value in your account currency?"

After all, it is a global market and not everyone displays accounts in the same currency.
In other words, the pip value must be converted into the currency in which the account can be traded.

This calculation is probably the easiest way. Just multiply or divide the "found pip value" by your account currency and the currency's exchange rate.

If the "found pip value" currency is the same currency as the base currency of the exchange rate estimate:

Using the GBP / JPY example above, let's convert the pip value found by using GBP / USD as the exchange rate ratio of 1.5590 to .813 GBP to USD as a pip value.

If the currency you are converting is the counter currency of the exchange rate, you only need to divide the "found pip value" by the rate of that exchange rate.

.813 GBP per pip / (1 GBP / 1.5590 USD)

or

[(.813 GBP) / (1 GBP)] x (1.5590 USD) = 1.2674 USD per pip move

So, for every .01 pip move from GBP / JPY, the value at the 10,000 unit position changes by about 1.27 USD.

If the currency you want to convert is the base currency of the exchange rate ratio, multiply the "discovered pip value" by the exchange rate percentage.

Using the USD / CAD example above, I would like to find a pip value of .98 USD in New Zealand dollars. We use .7900 as the conversion rate.

0.98 USD per pip X (1 NZD / .7900 USD)

or

[(0.98 USD) / (.7900 USD)] x (1 NZD) = 1.2405 NZD per pip move

In the example above, the position value of 10,000 units for every .0001 pip movement of USD / CAD changes by approximately 1.24 NZD.

Right now, at least it's a math genius with pip values, but I'll turn my eyes and think, "Should I solve all this?"
Well, the answer is no big fat. Almost all forex brokers solve all of this automatically, but it's good to know how it works.

Don't worry if the broker doesn't do this. You can use the Pip Value Calculator! Isn't it awesome ?!