How it works
Forex prices are quoted to four or five decimal places. A pip is a one-unit move at the fourth decimal place, the unit traders use to talk about wins, losses, spreads, and stop distances. The fifth decimal place is called a pipette and equals one-tenth of a pip.
Example
If EUR/USD moves from 1.0850 to 1.0855, that is a 5-pip move. On a standard lot of 100,000 units, each pip is worth about $10, so the move equals $50. On a mini lot of 10,000 units the same move is worth $5. On JPY pairs like USD/JPY, a pip is the second decimal place: 154.20 to 154.25 is also a 5-pip move.
Why it matters
Pip values let you size positions to a fixed dollar risk. If your stop is 20 pips away and you want to risk $100 on a trade, you take a half lot ($5 per pip times 20 pips equals $100). Without a clean pip definition there is no reliable way to compare spreads, stop distances, or strategy results across pairs.
