FM-0106
The Complete Forex Trading Blueprint
Module 1 – Forex Foundations
Lesson 1.6
What Are Pips in Forex?
Estimated Reading Time: 12 Minutes
Difficulty: Beginner
Why This Lesson Matters
In Lesson 1.5 – The Forex Market Is Open 24 Hours: How Trading Sessions Work, you learned when the Forex market is most active and why trading sessions matter.
Now we need to answer another fundamental question:
How do traders measure price movement?
If EUR/USD rises from 1.1000 to 1.1010, has the market moved a lot or only a little?
How do traders describe that movement?
How do brokers calculate profit and loss?
The answer is the pip.
Pips are the basic unit used to measure price movement in Forex. Every stop loss, take profit, risk calculation, and trading result depends on understanding pips.
This lesson gives you one of the most important building blocks in your Forex education.
Learning Objectives
By the end of this lesson, you should be able to:
Define a pip in Forex.
Identify where a pip is located in a price quote.
Calculate pip movement between two prices.
Understand why pips are used instead of currency amounts.
Read Forex price changes with confidence.
Introduction
Imagine measuring distance.
You could say a journey is 10 kilometers, 500 meters, or 25 centimeters.
Different units are used depending on what is being measured.
Forex also needs a standard unit for measuring price movement.
That unit is the pip.
Instead of saying:
“EUR/USD moved from 1.1000 to 1.1015,”
traders usually say:
“EUR/USD moved 15 pips.”
This allows traders around the world to communicate price movement quickly and clearly.
What Is a Pip?
A pip stands for Percentage in Point (sometimes called Price Interest Point).
In most currency pairs, one pip is the fourth decimal place.
For example:
EUR/USD: 1.1000
GBP/USD: 1.2500
AUD/USD: 0.6700
In these pairs:
1.1000 → 1.1001 = 1 pip
1.1000 → 1.1010 = 10 pips
1.1000 → 1.1025 = 25 pips
A pip is simply a standardized way of measuring how far a currency pair has moved.
Finding the Pip
Look at the price:
EUR/USD = 1.1057
Break it into decimal places:
Decimal Position | Value |
|---|---|
1st | 1 |
2nd | 0 |
3rd | 5 |
4th | 7 ← Pip |
The fourth decimal place is the pip.
If the price changes from 1.1057 to 1.1058, the market has moved 1 pip.
Calculating Pip Movement
Example 1
EUR/USD moves from 1.1000 to 1.1015.
Difference:
1.1015 − 1.1000 = 0.0015
This equals 15 pips.
Example 2
GBP/USD moves from 1.2500 to 1.2470.
Difference:
1.2500 − 1.2470 = 0.0030
This equals 30 pips.
Notice that the second example is a downward movement, but it is still measured in pips.
A Quick Reference
Table 1.6.1 — Pip Movement Examples
From | To | Pip Movement |
|---|---|---|
1.1000 | 1.1001 | 1 pip |
1.1000 | 1.1010 | 10 pips |
1.1000 | 1.1025 | 25 pips |
1.2500 | 1.2475 | 25 pips |
1.2500 | 1.2450 | 50 pips |
This table gives you a quick way to estimate pip movement between common price changes.
Why Do Traders Use Pips?
Imagine traders from different countries discussing the market.
One trader uses dollars.
Another uses euros.
Another uses naira.
Instead of saying:
“I made $120,”
or
“I lost ₦35,000,”
they often say:
“I gained 30 pips,”
or
“I lost 15 pips.”
Pips provide a universal language for measuring market movement regardless of account size or currency.
The Exception: Japanese Yen Pairs
Currency pairs involving the Japanese yen (JPY) are quoted differently.
For example:
USD/JPY = 145.30
EUR/JPY = 170.45
For JPY pairs, one pip is usually the second decimal place, not the fourth.
Examples:
145.30 → 145.31 = 1 pip
145.30 → 145.40 = 10 pips
145.30 → 146.00 = 70 pips
Do not worry about this difference too much yet.
Most beginners start with pairs such as EUR/USD and GBP/USD, where the fourth decimal place is the pip.
Real-World Example
Suppose you buy EUR/USD at 1.1000.
Later the price rises to 1.1020.
The movement is 20 pips.
Whether that earns you a small amount or a large amount depends on your position size, which we will study later.
For now, simply recognize that the market moved 20 pips.
Nigerian Perspective
Many Nigerian beginners focus heavily on how much money they can make.
A better habit is to first think in pips.
Professional traders often evaluate their performance by asking:
“How many pips did my strategy gain?”
“How many pips did I risk?”
“What was my average pip profit?”
Thinking in pips encourages consistency and makes strategy evaluation much easier.
The Cost of This Mistake
Confusing Pips With Money
A beginner may think:
“10 pips always equals the same amount of money.”
It does not.
The money value of a pip depends on position size, which you will learn later.
Better Habit
Separate these two ideas:
Pips measure market movement.
Money measures your trading result.
Master pips first.
Money calculations become much easier afterward.
FX Mentor Insight™
Beginners think in money. Professional traders think in pips and risk.
FX Mentor Principle™ #32
Measure the market in pips before measuring yourself in profits.
Lesson Summary
A pip is the standard unit used to measure price movement in Forex.
For most currency pairs, one pip is the fourth decimal place.
For Japanese yen pairs, one pip is usually the second decimal place.
Pips allow traders around the world to measure and discuss market movement consistently.
Understanding pips is essential because they are used in stop losses, take profits, spreads, and risk management calculations.
Knowledge Check
Before moving to the next lesson, make sure you can answer these questions:
What is a pip?
Which decimal place represents a pip in most currency pairs?
How many pips are there between 1.1000 and 1.1015?
How are JPY pairs different?
Why do traders use pips instead of currency amounts?
Continue Your Learning
This lesson is part of Module 1 – Forex Foundations.
Continue with:
Previous Lesson: Lesson 1.5 – The Forex Market Is Open 24 Hours: How Trading Sessions Work
Next Lesson: Lesson 1.7 – What Are Lots in Forex?
Related Reading
Forex Trading Strategies Explained: Full Beginner-to-Advanced Guide for Nigerian Traders
What's Next
In Lesson 1.7 – What Are Lots in Forex?, you will learn how trade size works in Forex, what standard, mini, micro, and nano lots are, and how position size affects the value of each pip.
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