What is a pip and why does it matter in forex?

Definition

A pip is the smallest standard price move in a currency pair. For most pairs, one pip equals 0.0001 (one ten-thousandth). For pairs involving the Japanese yen, one pip is 0.01 because the yen quote uses fewer decimal places.

How it affects your trades

When you see a quote like EUR/USD at 1.0850, each movement of 0.0001 is one pip. If the price moves from 1.0850 to 1.0851, that's a 1-pip move. Your broker calculates profit or loss based on pip movement multiplied by your position size. A standard lot (100,000 units) moving 1 pip typically equals $10 for pairs quoted in USD.

Why this matters

Pips help you compare trades fairly across different pairs and position sizes. They also set realistic expectations: most currency pairs move 50–150 pips per day under normal conditions. Understanding pip values prevents surprises when you close a position and see your actual profit or loss.