What is a PIP?

A pip is the unit of measurement for the change in the exchange rate of a currency pair. In the example below, the pip corresponds to the fourth digit after the decimal point.

The pip is one of the ways traders calculate the profit or loss from a trade. It is the unit that expresses the change in value of the ratio between two currencies. For example:

• If you open a buy position on the GBP/USD pair at 1.7550, and the price moves to 1.7600 when you close your position, you will have gained 50 pips.

• If you open a sell position at 1.6550, and the price drops to 1.6500 when you close it, you will also have gained 50 pips.

So, if the EUR/USD pair moves from 1.1060 to 1.1061, this 0.0001 USD increase in EUR is 1 pip.

The pip is usually the last decimal place of the quoted price. In most currency pairs, value changes are measured to the fourth decimal place. However, there are exceptions, such as pairs with the Japanese Yen, where the change is measured only to two decimal places. For example:

• For EUR/USD, the smallest change in the exchange rate is 0.0001.

• For USD/JPY, it is 0.01.

How to calculate the value of a PIP?

Since each currency pair has its own relative value, it is essential to calculate the pip value specifically for that pair. To make calculations clearer, exchange rates are expressed as a ratio (e.g., EUR/USD at 1.3000 is written as “1 EUR / 1.3000 USD”).