Pip in Forex Trading is the world’s largest and active trading market in today’s time. Every day there is a transaction of millions of dollars in this market. For those who are connected to this market or want to connect, a word is very important – “Pip” (PIP). If you are trading or thinking of doing in Forex Market, then it is mandatory for you to understand the pip.
1. What is PIP?
pip in forex trading means “percentage in point” or “price interest point“. This reflects the smallest change in the price of any currency in the Forex Market.
Say in easy language, when there is a small change in the price of a currency pair, that change is called Pip. For example, if the price of EUR/USD increases from 1.1050 to 1.1051, then it will be said that it has a movement of 1 pip.
2. Full form of Pip and its importance
As we mentioned above, the full name of Pip is “Percentage in Point”. It is used in trading to know how much change in the price of a currency pair.
Why is Pip important?
- It helps in calculating profits and loss.
- Trading is helpful in planning strategy.
- It is used in risk management.
3. How is Pip calculated?
Most currency pair is quoted in 4 decimal digits. As:
- EUR/USD = 1.1050
If it becomes 1.1051, it has changed 1 pip.
Exception: JPY Pairs
Such as USD/JPY = 110.10
Even if it becomes 110.11, it will be a movement of 1 pip, but there are only 2 decimal.
Common Mistakes in Pip Calculation
One of the biggest mistakes traders make when calculating pip in forex trading is ignoring the difference between currency pair types, such as standard pairs and JPY pairs, where the pip value changes. Another common error is forgetting to adjust the pip value based on lot size, which can lead to incorrect profit or loss estimations. Traders also often overlook the effect of the account’s base currency, especially when trading cross pairs. Misinterpreting fractional pips (pipettes) is another trap for beginners. To avoid these mistakes, always verify your currency pair’s pip size, lot size, and conversion rate before entering a trade.
4. What is the difference between pip and point?
Many new traders get confused in pips and points.
| Measurement | Meaning | Example |
|---|---|---|
| Pip (PIP) | Changes in the fourth decimal of the currency (or second decimal for JPY) | EUR/USD: 1.1050 → 1.1051 (1 Pip) |
| Point | Tenth part of Pip | 1 Pip = 10 Points |
Hence 1 pip = 0.0001 and 1 point = 0.00001 (for normal pair).
5. How to remove Pip Value?
The Pip in forex trading Value states how many dollars or rupees makes a difference of a pip in your trade.
Formula:
Pip Value = (Pip Size × Trade Size) / Currency Pair Price
Example:
Suppose you trade 1 lot (100,000 units) in EUR/USD.
- 1 Pip = 0.0001
- Trade Size = 100,000
- So: Pip Value = 0.0001 × 100,000 = $10
Meaning every pip movement will benefit or harm $10.
6. How does Pip profit and loss?
Your profit or disadvantage depends on whether the market is moving towards your direction or not.
Example:
You buy EUR/USD at 1.1000 and sold at 1.1050.
- Difference = 50 Pips
- Pip Value = $10 (1 lot)
- Total Profit = 50 × 10 = $500
If the market went in the opposite direction, it would have been a loss of $500.
7. Pip value according to micro, mini and standard lots
| Lot Size | Unit | 1 Pip Value (EUR/USD) |
|---|---|---|
| Micro Lot | 1,000 | $0.10 |
| Mini Lot | 10,000 | $1 |
| Standard Lot | 100,000 | $10 |
If you want to take less risk, it is good to start with a micro lot.
8. How to use pips?
- Stop Loss Set: SL of -30 Pips.
- Take Profit determining: like +50 pips TP.
- In backtesting: To see how many pips are earning the strategy.
- In live trading: To understand how fast the market movement is taking place.
9. Understand Real Life Example
Suppose you are trading USD/INR:
- Entry: 83.2000
- Exit: 83.1700
Difference = 0.0300 i.e. 30 pips movement.
If you have traded 1 mini lot (10,000 units):
- Pip Value = 10,000 × 0.01 = ₹100 (approx)
- Total Profit = 30 × ₹100 = ₹3,000
10. Common misunderstandings about pips
- Pip value is not the same on every trading platform.
- It is wrong to consider Fifth Decimal as Pip.
- The definition of pip is different in non-forex instruments (eg Gold or Crypto).
11. Why is it necessary to understand pips in forex trading?
- It helps in calculating your risk.
- The position gives the correct understanding of size.
- It is helpful in making an accurate strategy.
- With this you can set the goals of your trading.
Pip in Algorithmic Trading
In algorithmic trading, a pip in forex trading remains the standard unit of measurement for price changes, but its role becomes even more critical due to the automated nature of trades. Algorithms are often programmed to execute buy or sell orders based on specific pip movements, allowing traders to capture even the smallest market fluctuations with precision. For example, a forex bot might be set to enter a trade when the price moves by 10 pips and exit when it gains another 15 pips. This precision ensures that the trading strategy is consistent, emotion-free, and capable of operating around the clock, making pip calculations a cornerstone of profitable automated systems.
READ ALSO: How to Trade Crypto in India Safely in 2025 – A Beginner’s Guide
Conclusion
Pip in forex trading is the fundamental word in the language of forex trading. This small looking word has a huge impact in the trading world. Not only do you know the correct information of the pip, but you can also make better decisions, limit losses and maximize profits.
Disclaimer
The information provided in this article is for educational purposes only and does not constitute financial advice. Forex trading involves significant risk of loss and may not be suitable for all investors. Always do your own research before making any trading decisions.
