What Are Pips in Forex and Other Markets?

A pip is the smallest standardized price movement in a currency pair or other financial instrument. The term is an acronym for “percentage in point” or “price interest point,” depending on the source, but it essentially represents the tiniest increment by which a price can change in most trading platforms.

Pips are crucial because they allow traders, brokers, and analysts to measure price changes precisely, calculate profits/losses, and quote spreads (the difference between buy and sell prices).

While pips originated in forex, the concept (or similar units) exists in other markets under different names or measurements.

This article is not financial advice or trade advice, only an explanation.

Pips in the Forex Market

Forex is where pips are most commonly used and standardized, though may not universal as each platform may be different.

Standard Definition

For most currency pairs, 1 pip = 0.0001 (the fourth decimal place).
Example: EUR/USD moves from 1.0850 to 1.0851 = 1 pip increase.

Exceptions

Pairs involving the Japanese yen (JPY): 1 pip = 0.01 (second decimal place).
Example: USD/JPY from 145.50 to 145.51 = 1 pip.
Some brokers now use fractional pips (pipettes): 1/10th of a pip.
EUR/USD quoted as 1.08505 (the “5” is a pipette).
10 pipettes = 1 pip.

How Pips Determine Profit/Loss

Profit or loss is calculated as:
(Pips gained/lost) × (Pip value per lot) × (Number of lots)

Pip value varies by pair and lot size.
Standard lot (100,000 units): EUR/USD ≈ $10 per pip.
Mini lot (10,000 units): ≈ $1 per pip.
Micro lot (1,000 units): ≈ $0.10 per pip.

Spreads are quoted in pips (e.g., “EUR/USD spread: 0.8 pips”).

Pips (or Equivalent Units) in Other Markets

The exact term “pip” is forex-specific, but similar minimum price increments exist elsewhere:

Stocks

No “pips”; instead, prices move in ticks or cents.
U.S. stocks: Minimum tick size is $0.01 (1 cent) for most shares above $1.
Example: Apple (AAPL) from $225.50 to $225.51 = 1 cent move.
Penny stocks or certain exchanges may have smaller increments.

Stock Indices (e.g., S&P 500 Futures)

Measured in points or ticks.
E-mini S&P 500: 1 point = 4 ticks; minimum tick = 0.25 points ($12.50 per contract).

Commodities (Futures)

Each commodity has its own tick size.
Crude Oil (CL): Minimum tick = $0.01 per barrel ($10 per contract).
Gold (GC): Minimum tick = $0.10 per ounce ($10 per contract).
Often referred to as “ticks” rather than pips.

Cryptocurrencies

No standard “pip”; prices move in the smallest decimal unit of the exchange.
Bitcoin: Often quoted to 2 decimals ($95,200.50), but can move in cents or satoshis.
Spreads measured in dollars or percentage.

Bonds

Quoted in basis points (bps) or fractions of par value.
1 basis point = 0.01% = $0.10 per $1,000 face value.
U.S. Treasuries: Often priced in 32nds (e.g., 100-16 means 100 + 16/32).

Why Pips Matter

Precision: Allow consistent measurement across pairs with different values.
Risk Management: Stops and targets are set in pips (e.g., “risk 50 pips”).
Cost Calculation: Spreads and commissions often quoted in pips.
Comparison: Enable apples-to-apples profit/loss reporting regardless of pair.

In summary, pips are forex’s standardized unit of price movement (usually 0.0001 or 0.01), making the market’s smallest changes quantifiable. Other markets use equivalent units (ticks, points, cents, basis points) for the same purpose. Understanding these increments is essential for interpreting quotes, spreads, and price changes across all tradable assets.