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What is a pip?

Currency prices often fluctuate in such tiny movements that they are quoted in pips, short for percentage in point. In most cases, a pip refers to the fourth decimal point of the price, which is equivalent to 1/100th of 1%.

If the rate of EUR/USD moves from 1.07172 to 1.07182, the .0001 rise in USD value is equivalent to one pip

Fractional Pips

In reality, fractional pip provides even more precise indication of price movements. The superscript number at the end of each price is the Fractional Pip, which is 1/10th of a pip.

If EUR/USD moves from 1.10250 to 1.10350, that’s an increase of 10 pips

If EUR/USD moves from 1.10350 to 1.10250, that’s a decrease of 10 pips

The exception to this rule is the Japanese Yen (JPY), which is quoted to two decimal points:

If USD/JPY moves from 106.200 to 106.400, 
that’s an increase of 20 pips

If USD/JPY moves from 106.050 to 105.950, 
that’s a decrease of 10 pips

Calculating the value of a pip

The value of a pip depends on the currency pair that you are trading, as well as which currency is the base currency and which is the counter currency.

EUR/USD

If U.S. Dollar is on the right side (counter side) of the pair, then one pip is valued at USD1 per 10,000 trades

(Size of a pip) x (Base currency) = Pip value
(1 pip) x (EUR10,000) = USD1

Therefore, by the same example:

  • In this case, the value of one pip depends on the USD/JPY exchange rate.
  • If the above remains the same except that you sell at 1.10450 (a 10-pip decrease), you will lose USD10.

Next, let’s look at an example of the USD/JPY currency pair, with USD as the base currency.

In this case, the value of one pip depends on the USD/JPY exchange rate.

USD/JPY

If the buying price for USD/JPY is 106.20 
and your lot size is 10,000:

(Size of a pip) / (Exchange rate) x (Base currency) 
= Pip value
(1 pip) / (106.20) x (USD10,000) = USD 0.94

Therefore, by the same example:

  • Buying USD10,000 against JPY (USD/JPY) at 106.20 will earn you USD 0.94 for every pip’s increase in your favour. If you sell at 106.40 (a 20-pip increase), you will make a USD18.80 profit.
  • If the above remains the same except that you sell at 106.00 (a 20-pip decrease), you will lose USD18.80.