1. What is a Pip?
A pip (percentage in point) is the smallest standard unit of movement in a currency pair. Most pairs are priced to 4 decimal places, so:
- If EUR/USD moves from 1.1000 → 1.1001, that is 1 pip.
- Pips allow traders to measure profit or loss accurately.
2. Fractional Pips (Pipettes)
Some brokers quote prices to 5 decimal places, creating pipettes:
- EUR/USD moves from 1.10001 → 1.10002 = 1 pipette (1/10 of a pip)
3. Understanding Lots
A lot is the standard unit size of a Forex trade:
- Standard Lot: 100,000 units of base currency
- Mini Lot: 10,000 units
- Micro Lot: 1,000 units
4. Pip Value and Profit Calculation
To calculate profit/loss:
- Pip Value = (1 pip / exchange rate) × lot size
- Example: EUR/USD 1 standard lot = $10 per pip.
- For mini lot = $1 per pip, micro lot = $0.10 per pip.
Key Takeaways
- Pips measure small price movements and help track profits/losses.
- Lots define the trade size, affecting pip value.
- Understanding pips and lots is essential for risk management.
- Always calculate pip value before entering a trade.