If you’re new to Forex trading, one of the first terms you’ll hear is pip. Understanding what a pip is and how it works is essential for calculating profit, loss, and risk management.

🔹 What is a Pip in Forex?

A pip stands for “percentage in point.” It is the smallest unit of price movement in a currency pair.

For most pairs, 1 pip = 0.0001 (fourth decimal place).

For JPY pairs, 1 pip = 0.01 (second decimal place).

Example: If EUR/USD moves from 1.1000 to 1.1001, that’s a 1 pip increase.

🔹 How to Calculate Pips

Formula:

Pip Value = (One Pip ÷ Exchange Rate) × Lot Size

👉 For a standard lot (100,000 units) in EUR/USD, one pip equals $10.

🔹 Why Are Pips Important?

✅ Measure Profit & Loss – Traders calculate earnings/losses in pips.

✅ Set Stop-Loss & Take-Profit – Protect trades with precise levels.

✅ Compare Spreads – Lower spreads mean cheaper trading costs.

🔹 Tips for Beginners

Always check pip values before entering trades.

Start with micro lots to control risk.

Focus on spreads when choosing a broker.

✅ Final Thoughts

A pip may seem small, but it’s the foundation of Forex trading. Mastering pip calculations will help you measure risk, control position sizes, and become a smarter trader.