What is a pip?

Welcome — you are about to learn the single most important unit of measurement in currency trading. A pip is the smallest standard increment by which most currency pairs move. For nearly every pair, a pip is the fourth decimal place of the price. If EUR/USD moves from 1.1050 to 1.1051, that one-point change is a single pip.

Why not just talk about the price directly? Because a pip gives every trader a shared, neutral way to describe movement. Saying "the market moved 20 pips" means the same thing whether you are trading a tiny account or a large one. It separates the size of the move from the size of your position, which keeps your thinking clear.

There is one famous exception. Pairs that include the Japanese yen — like USD/JPY — are quoted to two decimal places, so a pip there is the second decimal. USD/JPY moving from 150.20 to 150.21 is one pip. Many brokers also show a fifth decimal (or third, for yen pairs) called a pipette, which is one tenth of a pip. Do not let that extra digit confuse you; the pip is still your anchor.

A pip separates the size of the move from the size of your position. That separation is the beginning of clear thinking.

The real reason pips matter is that they connect directly to money. A pip in a standard-sized trade is worth a fixed cash amount, so once you know your pip value you can translate any price move into profit or loss instantly. In the next lesson we will look at lots and leverage — the tools that decide exactly how much each pip is worth to you.