- What is a PIP in Forex?
- Why Are PIPs Important in Forex Trading?
- What Is a Spread in Forex?
- How Do PIPs Work with the Japanese Yen (JPY)?
- What Is Forex Pair Volatility?
- What Are The Types of Forex Currency Pairs?
- How to Calculate the Value of a PIP in Forex?
- How to Use Our Forex PIP Calculator?
- What’s the Difference Between a PIP, Pipette, and Lot?
- How do PIPs Impact Your Trading Risk?
- How Do News & Events Impact PIP Movements?
The foreign exchange market (Forex) is the largest financial market in the world, with trillions of dollars traded daily. For traders, understanding PIPs (Percentage in Point) is essential. PIPs measure price changes in currency pairs and help assess potential profits and losses in trading.
In this guide, we’ll explain what a PIP is, how it works, how to calculate it, and why it matters in Forex trading.
To make it easier, we also offer a free PIP Calculator—quickly determine PIP values to manage risk, optimise trades, and make smarter trading decisions.
What is a PIP in Forex?
A PIP (Percentage in Point) is the smallest price movement a currency pair can make on most forex trading platforms.
For most currency pairs, a PIP is equal to the fourth decimal place of an exchange rate.
For example
If the AUD/USD exchange rate moves from 0.6542 to 0.6576, that’s a 34 PIP change.
Since forex markets move quickly, PIPs provide a standardised way to measure price changes efficiently.
Why Are PIPs Important in Forex Trading?
PIPs play a key role in:
- Calculating profits and losses – PIPs help traders measure how much they gain or lose per trade.
- Managing risk – Traders set stop-loss and take-profit levels using PIPs.
- Understanding spreads – Brokers charge fees through spreads, which are measured in PIPs.
What Is a Spread in Forex?
A spread is the difference between the buy price (bid) and sell price (ask) of a currency pair. This is how brokers make money instead of charging direct commissions.
For example
If the AUD/USD buy price is 0.6553 and the sell price is 0.6551, the spread is 0.0002 (or 2 PIPs). A lower spread means lower trading costs.
How Do PIPs Work with the Japanese Yen (JPY)?
For most currencies, a PIP is the fourth decimal place (e.g., 0.0001). However, Japanese Yen (JPY) pairs are an exception because they are priced differently.
For JPY pairs, a PIP is the second decimal place (e.g., 0.01 instead of 0.0001).
If AUD/JPY moves from 90.50 to 90.75, that’s a 25 PIP movement.
What Is Forex Pair Volatility?
Volatility refers to how much a currency pair moves in PIPs over a certain period (such as a day).
More volatile pairs experience bigger price swings, which create both profit opportunities and risks.
Formula for Volatility:
Volatility = Highest price − Lowest price
For example
If AUD/USD reaches a high of 0.6789 and a low of 0.6743, the daily volatility is 46 PIPs.
What Are The Types of Forex Currency Pairs?
Forex currency pairs are categorised into three main types: Major Pairs, Minor Pairs, and Exotic Pairs. Understanding these categories is crucial for traders, as different pairs have different levels of liquidity, volatility, and trading costs.
Major Pairs
Major pairs are the most traded currency pairs in the world and always include the US dollar (USD) along with another major currency. These pairs have high liquidity, tighter spreads, and lower trading costs, making them popular among forex traders.
Examples of Major Pairs:
- AUD/USD ("Aussie") – Represents the exchange rate between the Australian dollar and the US dollar. It is one of the most actively traded pairs, influenced by factors like commodity prices and Reserve Bank of Australia (RBA) interest rate decisions.
- EUR/USD ("Fiber") – The most traded currency pair globally, accounting for nearly 25% of forex transactions. It reflects the economic relationship between the Eurozone and the United States.
- USD/JPY ("Ninja") – The second most traded forex pair, representing the exchange rate between the US dollar and the Japanese yen. The Bank of Japan’s monetary policies and global risk sentiment significantly affect this pair.
Good to know
Since major pairs have high trading volumes, they generally experience less volatility and have tighter bid-ask spreads, making them cost-effective for traders.
Minor Pairs (Cross Currency Pairs)
Minor pairs, also known as cross currency pairs, do not include the US dollar (USD). They involve other major global currencies such as the Euro (EUR), British Pound (GBP), Japanese Yen (JPY), Australian Dollar (AUD), and Canadian Dollar (CAD).
Examples of minor pairs
- EUR/GBP – The exchange rate between the Euro and the British pound.
- AUD/NZD – The exchange rate between the Australian dollar and the New Zealand dollar.
- EUR/JPY – The exchange rate between the Euro and the Japanese yen.
Minor pairs tend to have wider spreads than major pairs because they are less liquid. However, they offer more volatility, which can create larger trading opportunities.
Exotic Pairs
Exotic pairs include one major currency and one currency from an emerging or smaller economy. These pairs have lower trading volumes, which means they have higher volatility and wider spreads.
Examples of Exotic Pairs:
- AUD/SGD – The exchange rate between the Australian dollar and the Singapore dollar.
- USD/THB – The exchange rate between the US dollar and the Thai baht.
- EUR/TRY – The exchange rate between the Euro and the Turkish lira.
Since exotic pairs are less liquid, they tend to have higher trading costs due to wider bid-ask spreads. They also experience larger PIP movements, making them more volatile and riskier for traders.
Expert advice
- Major pairs are the most stable and liquid, making them suitable for most traders.
- Minor pairs offer more volatility but higher spreads.
- Exotic pairs are riskier due to larger price swings and higher trading costs.
If you're a beginner, it's usually best to start with major pairs before trading minor or exotic pairs, as they have lower risk and lower transaction costs.
How to Calculate the Value of a PIP in Forex?
The value of a PIP depends on the currency pair and trade size.
Formula:
PIP Value = (PIP Change × Lot Size) ÷ Exchange Rate
For example
Imagine AUD/USD moves from 0.7001 to 0.7002 (1 PIP change).
- Lot size = 100,000 units
- Exchange rate = 0.7002
PIP Value = (0.0001 × 100,000) ÷ 0.7002 = 14.28 AUD
Forex trading platforms automatically calculate PIP values, but understanding them helps with risk management.
How to Use Our Forex PIP Calculator?
Calculating PIPs manually can be time-consuming. That’s why we offer a free and easy-to-use PIP Calculator to help traders instantly determine their profit or loss on any trade.
- Enter the number of PIPs moved
- Select the currency pair (e.g., AUD/USD)
- Enter the trade size (lot size)
- Choose your deposit currency
Click "Calculate" to see the exact PIP value for your trade.
What’s the Difference Between a PIP, Pipette, and Lot?
| Term | Definition |
|---|---|
| PIP | The standard unit for measuring price changes in Forex. |
| Pipette | A fraction of a PIP (1/10th of a PIP) used by brokers with 5 decimal places. |
| Lot Size | The amount of currency traded. |
Common Lot Sizes:
- Nano Lot = 100 units
- Micro Lot = 1,000 units
- Mini Lot = 10,000 units
- Standard Lot = 100,000 units
If you trade 50,000 units, you’re using 5 mini lots.
How do PIPs Impact Your Trading Risk?
While PIPs measure market movements, trading with high leverage can magnify both profits and losses.
Key Risk Factors:
- Leverage Increases Risk – Higher leverage means larger position sizes, increasing profit/loss per PIP movement.
- Market Volatility – Sudden price swings can cause rapid PIP movements and unexpected losses.
- Holding Overnight – Keeping positions open overnight may result in swap fees, affecting overall profitability.
For example
If you trade 1 lot (100,000 units) of AUD/USD with 50:1 leverage, a 10 PIP movement results in:
- ✅ $100 profit if the trade goes in your favour
- ❌ $100 loss if the market moves against you
Pro Tip: Always use stop-loss orders to limit potential losses and avoid excessive leverage to protect your capital.
How Do News & Events Impact PIP Movements?
Major economic events can cause large PIP swings, impacting forex trading.
Key Events That Affect PIP Volatility:
- Reserve Bank of Australia (RBA) Interest Rate Decisions – Rate changes can move AUD pairs by 100+ PIPs.
- Employment Reports – Australian job data can trigger 50-100 PIP price swings in AUD pairs.
- GDP & Inflation Reports – Economic data affects currency demand, influencing PIPs.
- US Federal Reserve Announcements – Fed policy statements can impact global forex markets.
Expert advice
Trading during major news releases means higher volatility—use stop-losses wisely to manage risk.
PIPs aren’t just technical measurements—they are key to making informed trading decisions. By understanding how PIPs work, traders can:
- Minimise risk
- Maximise profits
- Develop long-term success in forex trading
To simplify your trading strategy, use our free PIP Calculator to quickly determine PIP values, manage risk, and optimise your trades with confidence.
