What is a Pip in Forex? Beginner's Guide to Forex Trading

If you’re just getting started in forex trading, you’ve probably come across the term “pip.” It sounds funny, right? Almost like a seed or a snack. 😄

But in trading, a pip is something quite different -and super important.

Let’s break it down in the simplest way possible.

🚀 So, What Exactly is a Pip?

A pip stands for “Percentage in Point” or sometimes “Price Interest Point.”

It’s the smallest price movement a currency pair can make — usually 0.0001 for most pairs.

Let’s say you’re trading EUR/USD, and the price goes from 1.1000 to 1.1001 — that’s a 1 pip move.

Easy, right?

💡 Why Do Pips Matter?

Think of pips as your profit and loss calculator in forex.

Let’s say you make a trade and the price goes 20 pips in your favor — that means you’re up! If it drops 20 pips against you… well, not so great.

The number of pips tells you how far the market has moved.

The more pips in your direction, the better (if you’re trading smart, of course).

“Every pip counts — small wins lead to big gains.”

 — Forex Proverb

How to Calculate Pips?

If you’re new to trading, you’ve probably heard the word “pip” flying around. But did you know pips are not the same across all trading instruments?

That’s right — how you calculate a pip (and its dollar value) depends on what you're trading — whether it’s a currency pair, gold, or an index like the Dow (US30).

Let’s break it down — no jargon, just real examples.

There are several pip calculators on the market to calculate pip and determine profit easily without hassle.

Now let’s see real-life examples of how pip movements translate to profit or loss.

For Major Currency Pair (EUR/USD)

📌 Pip Size: 0.0001

🧮 Standard Lot: 100,000 units

💵 Pip Value: ~$10 per pip

▶️ Example Trade:

You buy EUR/USD at 1.1000

Price moves to 1.1025

Pip difference = 25 pips

Profit Calculation:

25 pips × $10 = $250 profit

💬 Result: You earned $250 on this trade with a 25-pip gain.

For Gold (XAU/USD)

📌 Pip Size: 0.01 = 1 cent

🧮 1 Lot = 100 ounces

💵 Pip Value: $1 per pip (for 1 lot)

▶️ Example Trade:

You buy Gold at 1975.00

Price rises to 1976.80

Pip difference = 180 pips (that’s $1.80 move)

Profit Calculation:

180 pips × $1 = $180 profit

💬 Result: You gained $180 from that 180-pip (or $1.80) move.

For Index (US30 /Dow Jones)

📌 Pip Size: 1 point = 1 pip

🧮 1 Lot Size = 1 contract

💵 Pip Value: Usually $1 or $10 per point depending on your broker

▶️ Example Trade:

You buy US30 at 34,500

Price moves to 34,540

Pip difference = 40 points

Profit Calculation:

40 pips × $10 = $400 profit

💬 Result: You made $400 on a 40-point move.

🧮 How Much is a Pip Worth?

Good question. It depends on: The currency pair

The size of your trade (called “lot size”)

For a standard lot (which is 100,000 units), 1 pip is usually worth $10.

So if you gain 10 pips, that’s $100.

If you’re trading a mini lot (10,000 units), 1 pip = $1.

Important: Some brokers use something called fractional pips (pipettes) — they go one decimal further, like 0.00001 — but as a beginner, you don’t need to stress over that.

📊 Where Do You See Pips?

Most forex trading platforms (like MetaTrader or TradingView) show price movements with 4 decimal places.

So when you see EUR/USD moving from 1.1234 to 1.1238, that’s a 4 pip jump.

Keep an eye on those digits — they’re what determine your wins and losses.

🙋‍♂️✅ Quick Recap:

• Pip = smallest price move in forex (usually 0.0001)
• It helps measure profit or loss
• The value of a pip depends on your lot size
• 1 pip ≠ $1 unless you're using a specific lot size

Whether you’re trading currencies, metals, or indices — understanding how pips work is key to managing your trades and calculating your risk.

So next time someone says,

“I made 50 pips today,”

you’ll know exactly what that means. 💪