What is a Pip?

Ah, the humble pip. No, we’re not talking about fruit seeds or Dickens characters here. In the world of trading especially in the fast-paced lanes of forex a pip is the heartbeat of price movement. It’s short for “percentage in point” or “price interest point.” Doesn’t exactly roll off the tongue, does it? But bear with me.

Let’s break it down in proper English. Imagine you’re trading currency pairs, say, GBP/USD (because of course, the pound deserves top billing). If the price moves from 1.3000 to 1.3001, that tiny shift is called one pip. It’s the fourth decimal place in most currency pairs. Just one wee click on the ladder but when you’re trading in bulk, that pip can pack a punch.

Some of the overachievers in the room deal in pipettes fractional pips measured at the fifth decimal place. Great if you’re a precision nut or enjoy staring at charts until your eyes water.

How Do You Actually Calculate a Pip? (In USD)

Right math time, but don’t run for the hills just yet.

Let’s say you’re trading a standard lot, which is 100,000 units of the base currency.

In most major currency pairs, one pip is 0.0001. So, the formula to calculate pip value in USD (when USD is the quote currency, like in GBP/USD or EUR/USD) is:

Pip value = (1 pip) × lot size

So, for GBP/USD, with one pip being 0.0001 and a standard lot of 100,000:

0.0001 × 100,000 = $10 per pip

Yep $10 per pip on a standard lot. If you’re trading a mini lot (10,000 units), it’s $1 per pip, and a micro lot (1,000 units) gives you $0.10 per pip. Simple, right?

Now, for pairs where USD is the base currency, like USD/JPY, the calculation’s slightly different due to the way the yen is quoted. But let’s not make it a maths class just know that the value shifts depending on which side of the slash the dollars on.

Final Over

Bottom line: a pip is how you measure the movement of price in forex. It might look tiny, but when you’re trading big volume, it’s like watching singles turn into centuries.

So, the next time price shifts by one pip, don’t blink it could be $10 up or down on your position. That’s the game, and those are the stakes.

Now go on treat those pips with respect. They’re the runs on your scoreboard.