In forex trading, prices move in tiny increments, so traders need a simple unit to measure those changes—that’s where pips come in. A pip represents the fourth decimal place in most currency pairs. For example, if EUR/USD moves from 1.1000 to 1.1005, the price has increased by 5 pips.
Because exchange rates often shift by fractions of a cent, pips give traders a consistent language for talking about gains, losses, spreads, and volatility. Some brokers also quote fractional pips (called pipettes), which extend prices to the fifth decimal place for even more precision.
Pips help standardize the forex market, making it easier to calculate profit, risk, and position size. When traders analyze volatility, set stop-loss levels, or compare spreads across brokers, pips are the universal measurement. Even in fast-moving markets like GBP/JPY—where a pip equals 0.01—this unit offers structure and clarity.
Pips matter because they provide a universal way to measure price movements, calculate profits and losses, and compare volatility across currency pairs. Without pips, FX pricing would be far harder to interpret consistently.
Profit and loss depend on how many pips the price moves and the size of the trader’s position. For example, a 10-pip gain on a standard lot (100,000 units) in EUR/USD is worth $10. Knowing the pip value allows traders to set informed stop-loss and take-profit levels and manage position size relative to account risk.
Most currency pairs use four decimal places, but pairs involving the Japanese yen use two decimal places because their values are much larger numerically (e.g., 150.00). In these pairs, one pip equals 0.01 instead of 0.0001. This difference allows pip measurements to remain meaningful and consistent across the broader FX market.
Spreads—the difference between bid and ask—are commonly quoted in pips. A pair with a 1-pip spread is cheaper to trade than one with a 5-pip spread. Volatility also becomes easier to understand when expressed in pips: a daily move of 80 pips on EUR/USD signals far more action than a 20-pip day. Pips make these comparisons simple and universal.
If USD/CHF rises from 0.9000 to 0.9032, the pair has moved 32 pips. A trader who bought one standard lot at the open and sold at the close would earn roughly $320, depending on broker pip value and pair specifics.
FinFeedAPI’s Currencies API delivers granular forex price data that traders use to calculate pip movements, spreads, and volatility. Developers can build pip calculators, risk tools, or FX dashboards that track real-time pip changes and generate alerts when currency pairs hit important levels.
