Glossary
Pip: the smallest price step in forex
Forex prices move in tiny steps called pips. One pip sounds like nothing, but on a large position it is real money, and leverage makes that position easy to open.
A pip is the smallest price unit used to quote a currency pair, usually one ten-thousandth (0.0001). Traders count price moves in pips, and what a pip is worth in money depends on how many units you trade.
Quick answer
A pip is the smallest price unit of a currency [1], usually one ten-thousandth, or 0.0001 [2]. A move from 1.1000 to 1.1020 is 20 pips. On 100,000 units of a pair quoted in U.S. dollars, one pip is worth $10 (calculated).
Key points
- A pip is usually the fourth decimal place of a currency quote, 0.0001 [2].
- Pip value in money = units traded x pip size: 100,000 units x 0.0001 = $10 for a pair quoted in dollars (calculated).
- Leverage lets a small deposit control a large position, so a few pips can be a large share of your money [4].
On this page
What is a pip in forex?#
The CFTC's glossary defines a pip as the smallest price unit of a commodity or currency [1]. A CFTC enforcement order describes it more concretely: the last significant decimal place used in currency prices, usually equal to one ten-thousandth. Its own example is a move from 43.6750 to 43.6755, which is five pips [2].
Note the word "usually". The order does not say that every pair uses 0.0001, so check how your platform defines a pip for each pair before you rely on the numbers below.
pips moved = (new price - old price) / 0.0001
Example: a pair moves from 1.1000 to 1.1020. That is 0.0020 / 0.0001 = 20 pips (calculated).
How much is one pip worth?#
A pip only becomes money when you multiply it by your position size, measured in units of the first currency in the pair (the base currency). The CFTC order describes a firm selling currency pairs in lot sizes of 100,000 units of the base currency, where one pip was worth $10 for currencies quoted in U.S. dollars [2]. That matches the arithmetic: 100,000 x 0.0001 = $10 (calculated).
| Units of base currency | Value of 1 pip | Value of a 20-pip move |
|---|---|---|
| 100,000 | $10.00 | $200 |
| 10,000 | $1.00 | $20 |
| 1,000 | $0.10 | $2 |
Pip value for a pair quoted in U.S. dollars, pip size 0.0001 (calculated). Pairs quoted in other currencies give a pip value in that currency.
Why do small pip moves carry big risk?#
Because of leverage. The CFTC explains that a 2 percent margin requirement lets you open a $100,000 position with $2,000, that leverage amplifies losses as well as gains, and that you may owe losses beyond your initial deposit [4]. The same advisory says about two-thirds of customers at registered U.S. forex dealers lost money over the year it describes [4].
Before any trade, turn your stop distance in pips into money with the table above, then size the trade so that amount is one you can afford to lose. Our guide to position sizing walks through the method.
Frequently asked questions#
How do I count pips between two prices?
Subtract the lower price from the higher one and divide by the pip size. With a pip of 0.0001, a move from 1.2500 to 1.2475 is 0.0025 / 0.0001 = 25 pips (calculated). The CFTC's own example, 43.6750 to 43.6755, is five pips [2].
Is a pip always 0.0001?
Usually, not always. The CFTC order says a pip is usually equivalent to one ten-thousandth [2]. It does not list the exceptions, so check the pip size in the contract details on your platform.
Is a pip the same as a point or a tick?
Platforms use these words differently for different markets. Treat pip as the forex term and confirm the size of the smallest price step in each product's details before you trade.
The bottom line#
A pip is a unit of price, not of money. Count the pips to your stop, multiply by your position size, and you know what being wrong will cost. With leverage, a few dozen pips can be a large share of a small account, so do that sum every time. Try the numbers in our position size calculator and read the risk disclosure.
Sources
- CFTC Glossary: A Guide to the Language of the Futures Industry.
- Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act (In the Matter of SK's Forex International, Inc. and Elizabeth Miskus Kemp).
- 17 CFR 5.9 - Security deposits for retail forex transactions.
- Customer Advisory: Eight Things You Should Know Before Trading Forex.
Education only. This page is not investment, tax or legal advice. Trading and crypto can lose you money. See our risk disclosure.
