What is a pip in Forex? Traders often use pips to refer to gains or losses. A pip measures the exact change in the amount of exchange rate for a currency pair, and it is calculated using the last decimal point.
Since most major currency pairs are priced to 4 decimal places in most brokerage firms and liquidity sources, the smallest change is that of the last decimal point which is equivalent to 1/100 or 1%, or even one basis point. For example, if a trader says "I made 100 pips from my trade today". It means that the trader made a total profit of 100 pips. The actual cash amount this represents depends on the pip value of the pair traded.
For currency pairs displayed to 4 decimal places, one pip is = $0.0001
Yen-based currency pairs are an exception, and are displayed to only two decimal places (0.01)
Now We Know What A Pip Is. Okay, What Is A Pippette?
Most brokers introduced fractional pips, known as "pipettes" to allow for tighter spreads and better profits. A fractional pip or pipette is equivalent to 1/10 of a pip, making it possible to view the EUR/USD currency pair with pipettes to five decimal places, while currency pairs with the yen are quoted to three decimal places. Pipettes are displayed in superscript format in the MT4 or MT5 quotes.
So How Do We Calculate The Value Of A Pip?
Even though we have provided you a pip calculator here, it is also good to know how to calculate the actual value of a pip or pipette without a pip calculator 😊.
Most brokers offer a $100,000 account for all retail traders. So by default a value of a pip is actually $100,000 multiplied by 0.0001 which is $1 using the minimum lot size of 0.01. So when a trader says he made 100pips the real value of what he made in Dollars is 100pips/10 which is 10pips x $1 which equal $10 using 0.01 lot size.
Well, let's not stress your brain here 😄. Right on this page we have created a pip calculator based on the default trading desk of most Forex brokers so you don't stress yourself with the maths:
How To Use The Pip Calculator Above?
Let's say you are trading the GBPUSD and you sold at a price of 1.3940 and you plan to take profit at the level of 1.3800. How many pips are you targeting? 1.3940 - 1.3800 will give us 140pips.
The value of 140pips in Dollars using the 0.01 lot is $14.
Enjoy the tool!