What is a pip and how much is it worth?

When you trade stocks in the US Stock market, you will buy and sell stocks with dollars and cents. If stock traders are talking to each other and say a stock went up $3.25, they both know how far that is. Currency pairs, however, are quoted in exchange rates. So currency traders need a way to tell each other how much an exchange rate has changed (usually to several decimal places); They use "pips."

If a quote is 1.0000 and it moves to 1.0001, then it moved one pip. A pip was originally the smallest unit of measurement in the Forex market; it was the very last decimal place. Not too long ago, however, banks wanted even more detail in their quotes so they added another decimal place - a point. People in the currencies market still most commonly communicate market changes with pips, so just remember that in most major currencies pairs (JPY currencies pairs are different) the pip is the 4th decimal point and the point is the 5th.

If you are trading one full lot on a pair with USD as the quoted or first listed currency, each pip will gain or lose $10 USD for your account. Pairs with USD as the base currency are close to $10 per pip on a full lot, but not exactly. For more information about what a pip is and how to calculate its worth, watch the module What is a Pip? Or read our blog article, All About Pips.