// TRADING TERMINOLOGY

What is Pip?

A "pip" (percentage in point) is the foundational unit of measurement in forex trading, representing the smallest standard price move in an exchange rate.

In-Depth Explanation

If you cannot calculate pip value instantly, you have no business trading live capital. For most currency pairs (like GBP/USD or EUR/USD), a pip is the fourth decimal place. A move from 1.2500 to 1.2501 is exactly one pip. For pairs containing the Japanese Yen (JPY), the pip is the second decimal place (e.g., a move from 150.00 to 150.01). Understanding pips is the absolute bedrock of risk management. Without knowing exactly how much a 10-pip stop loss will cost you in cold, hard cash, you are not trading—you are gambling blindly.

Pete's Pro Tip

"Modern brokers use 5-digit pricing (or 3-digit for JPY). The final digit is a "pipette" (a tenth of a pip). Do not confuse pipettes with pips when setting your stop loss in MT4/MT5, or your stop will be 10x tighter than intended."

10 Pipettes = 1 Pip

If EUR/USD moves from 1.08000 to 1.08005, it has moved 5 pipettes (0.5 pips).

Source: Pricing Mechanics

Practical Example

"If you go long on GBP/USD at 1.2600 and your take profit is hit at 1.2650, you have captured 50 pips of profit. If you risked £10 per pip, that is a £500 gain."

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Related Terminology

Spread

The spread is the difference between the bid (sell) price and the ask (buy) price. It is the immediate cost of executing a trade.

Lot Size

A lot is the standardized unit used to measure the volume of a trade. It dictates exactly how much money each pip of movement is worth.

Leverage

Borrowed capital from your broker that lets you control a position larger than your deposit — amplifying both profits and losses equally.

Margin

Margin is the portion of your account balance that the broker "locks away" as collateral to keep your leveraged position open.

Tradeable Instruments Affected

EUR/USDEuro / US Dollar

GBP/USDBritish Pound / US Dollar

USD/JPYUS Dollar / Japanese Yen

Tactical How-To Guides

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How to Trade Forex — Beginner's Guide

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Master the language of risk

Knowing the terms is just the start. Learning how to apply them is where the edge is found.

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