Key fact: One pip equals 0.0001 for most currency pairs and 0.01 for Japanese yen pairs. On a standard lot of 100,000 units, one pip is worth about USD 10 for USD-quoted pairs.
How a pip works
A pip is the standard unit of price movement in forex, almost always the fourth decimal place (0.0001). On yen pairs it is the second decimal (0.01). Brokers also quote a fractional pip, or pipette, one decimal smaller, which is why you see prices like 1.08567. Pips are how spreads, stops, and targets are all measured, so the unit is the common language of every forex trade.
Worked example
You buy EUR/USD at 1.08500 and it rises to 1.08550. That is a 5 pip move. On a standard lot of 100,000 units, one pip is worth about $10, so the 5 pip move is roughly $50. On a mini lot it is about $1 per pip, and on a micro lot about $0.10. Pip value scales linearly with position size, which is why sizing is decided in lots, not in feelings.
Why pips matter for cost and risk
Every cost you pay is quoted in pips. The EUR/USD spread on a Volity Markets account can be under one pip during the London and New York overlap, so the round-trip cost on a standard lot is a few dollars. Pips also define risk: if your stop is 20 pips away on a standard lot, you are risking about $200, and the one percent rule then tells you how large the account must be to take that trade. Read pips together with slippage, the gap between the price you click and the price you fill, and with currency pair quoting conventions.
Read the full breakdown in our forex trading guide.
