What is a Pip in Forex Trading?
A Simple Beginner’s Guide

When people first see a forex price, they often notice that it has many numbers after the decimal point.

For example, a trading platform may show:

A short time later, the price may change to:

The difference between these two prices is very small. In forex trading, small price changes are commonly measured in pips.

A pip is a simple unit used to describe how much a currency pair’s price has moved. It does not tell you whether a price will rise or fall. It only helps you measure the size of a price change.

Understanding pips makes it easier to read forex quotes, spreads and price movements on a trading platform.

All examples in this article are for educational purposes only. They are not live market prices.

What Does Pip Mean?

Pip is a common term used in forex trading to describe a small change in the price of a currency pair.

For most currency pairs, one pip is equal to 0.0001.

For example, if EUR/USD moves from:

the price has moved by one pip.

The change may look very small, but forex prices are usually quoted with several decimal places. This allows platforms to show small movements in the relationship between two currencies.

A pip is simply a measuring unit. It is similar to using centimetres to measure a small distance. In forex, pips help describe the distance between one exchange-rate quote and another.

Why Are Pips Used in Forex?

Currency values usually do not change in large whole-number steps.

For example, EUR/USD may move from 1.0845 to 1.0846, rather than from 1.00 to 2.00. Small changes can happen many times while the forex market is open.

Pips provide a simple way to describe these changes.

Instead of saying that EUR/USD moved from 1.0845 to 1.0852, a person can say that it moved by seven pips.

This makes it easier to discuss price movement without repeating long numbers.

Pips are also commonly used when looking at the difference between the buy price and sell price on a forex quote. This difference is called the spread.

Where is the Pip in EUR/USD?

For many currency pairs, including EUR/USD, GBP/USD and AUD/USD, the pip is usually the fourth digit after the decimal point.

Look at this example:

The number after the decimal point is:

The fourth digit after the decimal point is 5. This is the usual pip position for EUR/USD.

Now look at the next quote:

The fourth digit has changed from 5 to 6.

This is a one-pip movement.

If EUR/USD moves from 1.0845 to 1.0847, it has moved by two pips.

If it moves from 1.0845 to 1.0850, it has moved by five pips.

The simplest way to remember this is that, for many non-JPY currency pairs, the fourth decimal place is the pip position.

How Pips Relate to Forex Spreads?

A forex quote often shows two prices.

One is the sell price, and the other is the buy price.

For example:

The difference between the two prices is 0.00003.

In a five-decimal quote, this is commonly described as three fractional-pip steps, or 0.3 pips.

Now look at this example:

The difference is 0.00010.

This is one full pip.

Understanding pips can make it easier to read the spread shown on a forex platform. The spread can change depending on the currency pair, market activity, liquidity and the provider’s pricing conditions.

Do Pips Always Have the Same Value?

A pip measures price movement, but its monetary effect can vary.

The effect of a one-pip movement depends on the currency pair, position size, account currency, contract details and the product terms.

For this reason, it is important not to assume that one pip has the same monetary effect in every situation.

A trading platform may show pip-related information in its order window or product specification. Before taking any action, review the contract details and pricing information for the specific instrument

A Simple Way to Remember Pips

For many currency pairs such as EUR/USD and GBP/USD, one pip is usually the fourth digit after the decimal point.

For many Japanese-yen pairs such as USD/JPY, one pip is usually the second digit after the decimal point.

If your platform shows one additional digit, that final digit normally represents a smaller fraction of one pip.

Pips measure how much a price has moved. They do not predict future price direction, and they do not remove the risks involved in forex trading.