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What is a Pip?

08/10/2025 07:51:17

In forex and CFD trading, the minimum price fluctuation is typically measured in pips (Percentage in Points). However, many beginners confuse the concepts of pips and points.

 

Relationship

  • 1 pip = 10 pips
  • A pip is a decimal point smaller than a pip (for example, the fifth decimal point for non-Japanese Yen currency pairs), while a pip is the standard unit for calculating profit and loss in trading.

Example

Assuming EUR/USD = 1.10000:

  • A price increase to 1.10001 → a 1 pip increase
  • A price increase to 1.10010 → a 10 pip increase = 1 pip

Understanding the pip concept is crucial, as it not only determines how price fluctuations are measured but also directly impacts profit and loss calculations in trading.

 

Basic Definition of Pip
  • In most currency pairs, a change to the fourth decimal place is 1 pip.
    For example, if the EUR/USD price rises from 1.1000 to 1.1001, it's a 1 pip increase.
  • In currency pairs involving the Japanese Yen (JPY), the second decimal place usually represents 1 pip.
    For example, if the USD/JPY price falls from 110.00 to 109.99, it's a 1 pip decrease.
 
The Relationship Between Pip and Profit and Loss

In trading, pips directly affect your profit and loss:

  • For example, if you trade 1 standard lot (100,000 units) of EUR/USD:
    1 pip ≈ $10.
  • If you trade 1 mini lot (10,000 units):
    1 pip ≈ $1.
  • If you trade 1 micro lot (1,000 units):
    1 pip ≈ $0.1.

Therefore, even small price fluctuations can result in significant profits or losses.

 

Difference from "Spread"
  • Pip: The smallest unit of price movement.
  • Spread: The difference between the ask and ask prices, usually measured in pips.

For example: If the EUR/USD bid is 1.1001 and the ask is 1.1000, the spread is 1 pip.

 

The pip is a core concept for understanding trading profits and losses and costs.

At DecodeFX, you can choose the following based on your needs:

  • Standard Account: No additional commissions, slightly higher spreads;
  • Pro Low Spread Account: Spreads start as low as 0.0 pips, and a $7 commission per standard lot round trip is charged. It is more suitable for high-frequency or professional traders. 

With flexible account options, you can better manage trading costs and seize opportunities presented by price fluctuations.

To learn more about trading fundamentals, visit the DecodeFX Academy.