What is a Pip?
A pip (Percentage in Point) is the smallest standard price movement in forex. It's how we measure how much a currency pair has moved.
The Standard Definition
For most currency pairs, 1 pip = 0.0001 (the fourth decimal place)
For JPY pairs, 1 pip = 0.01 (the second decimal place)
Visual Example: Counting Pips
EUR/USD Movement
The price moved from 1.0850 to 1.0875 = +25 pips
USD/JPY Movement
The price moved from 149.50 to 150.00 = +50 pips
What About the Fifth Decimal (Pipettes)?
Many brokers now quote prices to 5 decimal places (3 for JPY pairs). The fifth decimal is called a pipette or "fractional pip".
The "3" is a pipette = 0.3 of a pip
10 pipettes = 1 pip
💡 Don't Overthink Pipettes
For practical purposes, focus on whole pips. Pipettes matter for precise entries but won't significantly affect your P&L calculations. If your broker shows 5 decimals, just know that the 4th decimal is still the pip.
How Much is a Pip Worth?
Here's where it gets important: a pip's monetary value depends on your position size (lot size) and the currency pair you're trading.
The Pip Value Formula
For pairs where USD is the quote currency (EUR/USD, GBP/USD), it's simpler - pip value is fixed in USD.
Pip Values for Standard Lot (100,000 units)
| Pair | Pip Value (1 Standard Lot) | Calculation |
|---|---|---|
| EUR/USD | $10.00 | 0.0001 × 100,000 = $10 |
| GBP/USD | $10.00 | 0.0001 × 100,000 = $10 |
| USD/JPY | ~$6.67* | 0.01 ÷ 150 × 100,000 ≈ $6.67 |
| USD/CHF | ~$11.36* | 0.0001 ÷ 0.88 × 100,000 ≈ $11.36 |
| AUD/USD | $10.00 | 0.0001 × 100,000 = $10 |
*Values vary based on current exchange rate
🎯 Key Insight: USD Quote Pairs
For any pair where USD is the quote currency (second currency) - like EUR/USD, GBP/USD, AUD/USD - the pip value is always $10 per standard lot. This makes calculations much easier.
Quick Reference: Pip Values by Lot Size
Standard Lot
For USD quote pairs
Mini Lot
For USD quote pairs
Micro Lot
For USD quote pairs
Nano Lot
Not all brokers offer
Understanding Lot Sizes
A lot is the standardized unit of measurement for trade size in forex. When you place a trade, you specify how many lots you want to trade.
Lot Size Breakdown
| Lot Type | Units | Platform Display | EUR/USD Value | Best For |
|---|---|---|---|---|
| Standard | 100,000 | 1.00 | ~$100,000 | Large accounts ($10K+) |
| Mini | 10,000 | 0.10 | ~$10,000 | Medium accounts ($1K-10K) |
| Micro | 1,000 | 0.01 | ~$1,000 | Small accounts, beginners |
| Nano | 100 | 0.001 | ~$100 | Cent accounts, practice |
📱 How It Appears on Your Platform
When you open a trade on MT4/MT5, you enter the lot size as a decimal:
- 1.00 = 1 standard lot (100,000 units)
- 0.10 = 1 mini lot (10,000 units)
- 0.01 = 1 micro lot (1,000 units)
- 0.05 = 5 micro lots (5,000 units)
Real Money Example
Scenario: Trading EUR/USD with Different Lot Sizes
You buy EUR/USD at 1.0850 and price moves to 1.0900 (50 pips profit)
⚠️ Remember: Losses work the same way. A 50-pip loss with a standard lot = -$500.
Position Sizing: The Most Important Skill
Position sizing is how you control risk. It answers the question: "How much should I trade so that if I lose, I only lose X% of my account?"
🏆 The Golden Rule
Never risk more than 1-2% of your account on any single trade.
This means if you have a $1,000 account, you should never lose more than $10-20 on one trade.
The Position Size Formula
Step-by-Step Position Sizing Examples
Example 1: Basic Position Sizing
If your stop loss hits, you lose exactly $50 (1% of account)
Example 2: Tighter Stop Loss
Tighter stop = larger position size (but same dollar risk)
Example 3: Small Account
Small accounts need micro lots to manage risk properly
⚠️ Why Position Sizing Matters
Without proper position sizing, a 10-trade losing streak (which WILL happen to every trader) could wipe out your account. With 1% risk, that same losing streak only costs 10% of your account - painful but survivable.
Quick Reference Calculator
Use this table to quickly find your position size based on account size and stop loss:
Position Size for 1% Risk on EUR/USD
| Account Size | $ at Risk (1%) | 20 pip SL | 30 pip SL | 50 pip SL | 100 pip SL |
|---|---|---|---|---|---|
| $500 | $5 | 0.025 | 0.017 | 0.01 | 0.005 |
| $1,000 | $10 | 0.05 | 0.033 | 0.02 | 0.01 |
| $2,000 | $20 | 0.10 | 0.067 | 0.04 | 0.02 |
| $5,000 | $50 | 0.25 | 0.167 | 0.10 | 0.05 |
| $10,000 | $100 | 0.50 | 0.333 | 0.20 | 0.10 |
🧮 Use Our Free Calculator
Don't want to do the math manually? Use our position size calculator:
Open Position Size Calculator →Key Takeaways
1 pip = 0.0001 for most pairs (0.01 for JPY pairs). This is the smallest standard price movement.
Pip value depends on lot size - Standard lot = $10/pip, Mini = $1/pip, Micro = $0.10/pip (for USD pairs).
Risk 1-2% per trade maximum - This is the golden rule of position sizing.
Position size = Risk $ ÷ SL pips ÷ pip value - Calculate this BEFORE every trade.
Small accounts need micro lots - Don't over-leverage. Trade what your account can handle.