What is a pip?

The unit of a move

In the foreign exchange market a pip, short for percentage in point, is the smallest standard unit for a change in a currency pair's price. On most pairs it is the fourth decimal place; on pairs that include the Japanese yen it is the second.

If EUR/USD moves from 1.2134 to 1.2135 it has risen by one pip. If USD/JPY moves from 106.25 to 106.26 it has also risen by one pip.

Pips matter because they measure the profit or loss on a trade. The number of pips gained or lost, together with your position size, decides the money.

What a pip is worth

To work out the value of a pip you need three things:

• the pair you are trading
• its exchange rate
• your position size, in lots

The formula is: pip in decimal places, divided by the exchange rate, multiplied by the position size.

Trading EUR/USD at 1.2134 with one standard lot of 100,000 units, the value of one pip is 0.0001 divided by 1.2134, multiplied by 100,000, which is 8.24 USD. For every pip EUR/USD moves, the trade gains or loses 8.24 USD, depending on its direction.

Crypto

With Bitcoin, or any other crypto, the pip math is different because it starts from the contract size. A contract specification states how much of the product one contract holds, in units of the base currency, and the same principle applies to every symbol.

For BTCUSD the contract size is 1, so buying one lot means buying one Bitcoin. Every dollar Bitcoin moves is then worth 10 dollars on a standard lot of 10 coins' notional quoted the usual way, one dollar on 0.10 lot and ten cents on 0.01 lot.

A worked example: you buy 0.01 lot of BTCUSD and Bitcoin falls 54 dollars from your entry, spread included. Your position is one hundredth of a coin, so you are down 54 cents.

Commodities

Commodities and indices count differently again. If gold (XAU/USD) falls from 1810.00 to 1800.00, that is a 100 pip move, and on brokers that quote an extra decimal it shows as 1,000 points. If crude oil moves from 40.00 to 41.00, that is a 100 pip move on most brokers.

Indices

For an index like the S&P 500, a move from 3200 to 3225 is 25 points of price. Some brokers count that as 25 pips, most as 250.

For the US30 (the Dow Jones), a move from 26,000 to 27,000 is 1,000 points of price. Depending on the broker that counts as 1,000 pips, 100 pips or 10,000 pips.

To find the exact conversion, check the broker's contract specifications or take a small trade on a demo account.

Let the math run itself

You never need to do this by hand before a trade. The position size calculator in the Trade Desk takes the pair, your stop distance and your risk and returns the lot size and the value of each pip, in your account currency, for forex, crypto, commodities and indices alike.