what is a pip 
a pip is the smallest whole unit price move that an exchange rate can make based on forex market convention a pip is one hundredth of 1 1 100 x 01 and appears in the fourth decimal place 0 0001 most currency pairs are priced out to four decimal places and a single pip is in the fourth decimal place i e 1 10 000th for example the smallest whole unit move the usd cad currency pair can make is 0 0001 or one pip pips used in forex trading should not be confused with bps basis points which are used in interest rates markets that represent 1 100th of 1 i e 0 01 understanding pipsa pip is a fundamental concept of foreign exchange forex forex traders buy and sell a currency whose value is expressed in relation to another currency quotes for these forex pairs appear as bid and ask spreads that are accurate to four decimal places movement in the exchange rate is measured by pips since most currency pairs are quoted to a maximum of four decimal places the smallest whole unit change for these pairs is one pip pip is an acronym for percentage in point or price interest point calculating pip valuea pip s value depends on the currency pair the exchange rate and the trade value when your forex account is funded with u s dollars and usd is the second of the pair or the quote currency such as with the eur usd pair the pip is fixed at 0001 in this case the value of one pip is calculated by multiplying the trade value or lot size by 0 0001 so for the eur usd pair multiply a trade value of say 10 000 euros by 0001 the pip value is 1 if you bought 10 000 euros against the dollar at 1 0801 and sold at 1 0811 you d make a profit of 10 pips or 10 if the usd is the first of the pair or the base currency such as with the usd cad pair the pip value also involves the exchange rate divide the size of a pip by the exchange rate and then multiply by the trade value or lot size for example 0001 divided by a usd cad exchange rate of 1 2829 and multiplied by a standard lot size of 100 000 results in a pip value of 7 79 if you bought 100 000 usd against the canadian dollar at 1 2829 and sold at 1 2830 you d make a profit of 1 pip or 7 79 japanese yen jpy pairs are quoted with two decimal places marking a notable exception to the four decimal place rule 1 for currency pairs such as the eur jpy and usd jpy the value of a pip is 1 100 divided by the exchange rate for example if the eur jpy is quoted as 132 62 one pip is 1 100 132 62 0 0000754 with a lot size of 100 000 euros the value of one pip in usd would be 7 54 fractional pips are smaller than pips and thus are a more precise measurement they may appear as a superscript numeral at the end of a quoted exchange rate or as the fifth digit to the right of the decimal point or third digit on yen pairs the fractional pip or pipette is 1 10 of a pip even though traders may also refer to it as a pip which can be unnecessarily confusing pips and profitabilitythe movement of the exchange rate of a currency pair determines whether a trader makes a profit or loss at the end of the day a trader who buys the eur usd will profit if the euro increases in value relative to the u s dollar if the trader bought the euro for 1 1835 and exited the trade at 1 1901 they would make 66 pips on the trade 1 1901 1 1835 now consider a trader who buys the japanese yen by selling the usd jpy pair at 112 06 the trader loses three pips on the trade if they close out the position at 112 09 they profit by five pips if they close it out at 112 01 while the difference may look small in the multi trillion dollar foreign exchange market gains and losses can add up quickly for example on a 10 million position that closed at 112 01 the trader would make 500 000 in u s dollars that s 4 463 89 500 000 112 01 real world examples of pipa combination of hyperinflation and devaluation can push exchange rates to the point where they become unmanageable in addition to impacting consumers who are forced to carry large amounts of cash this can make trading unmanageable and the concept of a pip loses meaning a well known historical example of this occurred in germany s weimar republic when the exchange rate collapsed from its pre world war i level of 4 2 marks per dollar to 4 2 trillion marks per dollar in november 1923 2another case in point is the turkish lira which reached a level of 1 6 million per dollar in 2001 which many trading systems could not accommodate 3 the government eliminated six zeros from the exchange rate and renamed it the new turkish lira as of february 2024 the average exchange rate was 0 032 lira per dollar tky usd 