What is a pip in forex trading?

A pip, short for 'percentage in point,' serves as a unit of measurement to convey the change in value between two currencies.

The number of decimal places used in quoting a forex pair reflects the relative value between the two currencies involved. For most currency pairs, pips typically refer to the fourth decimal place (0.0001). For example, if the EUR/USD moves from 1.1015 to 1.1016, then it has increased by 1 pip. However, forex pairs involving the Japanese yen tend to be quoted with two decimal places (0.01) due to the yen historically having a lower value compared to other major currencies. For example, if the USD/JPY moves from 144.30 to 144.32, it has increased by 2 pips.

What is a pipette?

Despite forex pips equalling either 0.0001 or 0.01, brokers usually display quotes with either 5 or 3 decimal places. These additional decimal places are commonly known as ‘points’ or ‘pipettes’. For instance, if EUR/USD increases from 1.10161 to 1.10162, it signifies an increase of 0.00001 USD, and if USD/JPY increases from 144.323 to 144.324, it has an increase of 0.001. These small movements correspond to one pipette or one-tenth of a pip.

How to calculate pip values

The monetary value of a pip varies depending on the trade size and the currency pair traded. Traders can estimate the pip value on their trades by using Deriv’s pip calculator based on the formulas mentioned below. 

For direct currency pairs (where USD is quoted) like EUR/USD:

Pip value = point value x volume x contract size

For instance, trading 2 lots of EUR/USD has a pip value of 2 USD.