Pip
Category
Forex-spezifisch
Sub-category
Pip, Lot, Hebel-Mechanik
Curated by
Last reviewed
A pip is the standardized smallest price unit in forex trading – the fourth decimal place (0.0001) for most pairs, the second (0.01) for yen pairs. Pips make moves comparable across pairs and are the basis of every position sizing and risk calculation: only the pip value translates a stop distance into real money.
Context & Mechanics
Definition and scale
Pip stands for “percentage in point” and denotes the standardized smallest price change of a currency pair. For most pairs (EUR/USD, GBP/USD) that is the fourth decimal place: 0.0001. For yen pairs (USD/JPY, EUR/JPY) it is the second: 0.01. Many brokers quote an additional fifth or third decimal – the pipette, a tenth of a pip. Confusing the two means mismeasuring distances by a factor of ten.
Calculating pip value
Pip value translates price movement into money and depends on position size: position size × 0.0001. One standard lot (100,000 units) of EUR/USD moves 10 US dollars per pip, a mini lot (10,000) 1 dollar, a micro lot (1,000) 0.10 dollars. If the account currency differs from the quote currency, the value is converted additionally.
From pip to position size
The pip links the stop-loss to risk: account risk ÷ (stop distance in pips × pip value) = position size. This calculation – not leverage – determines the actual loss risk of a trade; leverage only affects how much margin the position ties up. The full logic is described under position sizing.
Relevance in prop trading
Prop firm limits such as the daily loss limit are defined in account currency, while stops are set in pips. Traders who do not know their pip value cannot know how many losing trades separate them from the daily limit. The spread is also measured in pips: in short-term strategies with small targets, a few pips of cost difference decide the expectancy.
Execution Example
A trader risks 1% of a $10,000 account ($100) in EUR/USD. The stop-loss sits 25 pips below entry.
- Pip value per mini lot (10,000 units): 10,000 × 0.0001 = $1 per pip.
- Risk per mini lot: 25 pips × $1 = $25.
- Position size: $100 ÷ $25 = 4 mini lots (0.4 standard lots).
- Check: 25 pips × $4 = $100 = exactly 1% – the broker's leverage does not change this risk, only the required margin.
Execution Risk & Errors
Confusing pips with pipettes (tenth pips) and mismeasuring distances by a factor of 10
Calculating yen-pair pip values like four-decimal pairs
Sizing positions by gut feeling instead of pip value and stop distance
Equating leverage with risk instead of controlling risk via pips × pip value
Ignoring the spread in pips in short-term strategies
Frequently Asked
How much is a pip worth?
Position size × 0.0001 (or 0.01 for yen pairs), converted into the account currency. One standard lot of EUR/USD moves 10 US dollars per pip, a mini lot 1 dollar, a micro lot 0.10 dollars.
What is the difference between pip, pipette and tick?
The pip is the standardized fourth (or second) decimal place, the pipette a tenth of it. A tick is the smallest possible price change of a specific market – defined by the contract in futures, not identical to the pip.
Why do yen pairs use the second decimal place?
Because one yen is worth far less than a dollar or euro, yen pairs are quoted at much higher figures (e.g. 155.00). The second decimal there matches the same relative magnitude as 0.0001 in other pairs.
How do I convert pips into account risk?
Stop distance in pips × pip value × lots = risk in quote currency, then convert into the account currency. Reversed, account risk ÷ (stop distance × pip value) gives the maximum position size.