Pip

A pip is a standardized unit of price movement in a currency pair, defined at the fourth decimal place for most pairs, so EURUSD moving from 1.0850 to 1.0851 is a one-pip move. Yen pairs are the standard exception: because the yen trades at a much larger nominal value per unit of foreign currency, JPY pairs quote to only two decimal places, so USDJPY moving from 149.50 to 149.51 is also a one-pip move, even though the decimal position looks different.

Pips exist because expressing every currency move as a raw percentage would be clumsy to communicate and compare across pairs trading at very different price levels. Quoting in pips lets a trader say a stop was hit at 15 pips or a target was 40 pips away, in a shared unit that other forex traders immediately understand, regardless of whether the pair in question trades near 1.00 or near 150. Position sizing and risk management in forex are built around pip values, converting a pip move into the trader's own account currency to know exactly how much a given stop-loss risks.

Pips don't map to a consistent percentage move across different pairs, so a 50-pip move means something very different in relative terms on a pair trading near 0.65 than on one trading near 150. A pipette, one-tenth of a pip, exists at many brokers for finer pricing, the fifth decimal on most pairs, third on yen pairs, and gets confused with a full pip constantly, especially when comparing spreads quoted by different brokers. And basis points, the unit used for interest rates and bond yields, are a completely separate concept from pips despite both being small fixed-size units. Mixing the two up, treating a 25 basis point rate move as if it were priced the same way as a 25 pip currency move, is a common beginner mistake.

Suppose EURUSD moves from 1.0850 to 1.0900, a 50-pip move (0.0050 in raw price terms). On a standard 100,000-unit lot, each pip is typically worth about $10, so that 50-pip move represents roughly $500 of profit or loss on one standard lot. Now compare USDJPY moving from 149.50 to 150.00, also a 50-pip move by the two-decimal JPY convention, even though the raw price change (0.50) looks a hundred times larger in absolute number terms than the EURUSD example. Reading both as "50 pips" is exactly why the unit exists: it puts differently-scaled pairs on a comparable footing for describing the size of a move.