- 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?
- Types of Forex Currency Pairs
- How to Calculate the Value of a PIP in Forex
- How to Use Our PIP Calculator UK
- What’s the Difference Between a PIP, Pipette, and Lot?
- How to Calculate Profit or Loss Using PIPs
- How Much is 50 PIPs Worth?
The foreign exchange market (Forex) is the largest financial market in the world, with over £5 trillion traded daily. If you're trading Forex, understanding PIPs (Percentage in Point) is essential, as they measure price movements between currency pairs and help determine profits and losses.
This guide explains what a PIP is, how it works, how to calculate PIP values, and why it matters in Forex trading.
To make things even easier, we’ve also provided a free PIP Calculator to help you instantly calculate PIP values and manage risk effectively.
What is a PIP in Forex?
A PIP (Percentage in Point) is the smallest price movement that a currency pair can make in most Forex trading platforms.
For most major currency pairs, a PIP is equal to the fourth decimal place of an exchange rate.
For example
If GBP/USD moves from 1.2500 to 1.2515, that’s a change of 15 PIPs.
Since Forex markets move quickly, PIPs provide a standard unit to measure price changes efficiently.
Why are PIPs Important in Forex Trading?
PIPs are a key part of Forex trading, as they help traders:
- Calculate profits and losses – Each PIP movement affects how much you earn or lose.
- Manage risk – Stop-loss and take-profit levels are set using PIPs.
- Understand spreads – Brokers charge fees through spreads, measured in PIPs.
- Assess market volatility – Analysing PIP movements helps traders identify highly volatile currency pairs and adjust their strategies accordingly.
- Compare broker pricing – Different brokers offer varying spreads in PIPs, which can impact trading costs and profitability.
What is a Spread in Forex?
A spread is the difference between the buy price (bid) and the sell price (ask) of a currency pair. This is how brokers generate revenue instead of charging direct commissions.
Good to know
If the GBP/USD buy price is 1.2510 and the sell price is 1.2508, the spread is 0.0002 (or 2 PIPs).
A narrower spread means lower trading costs, while a wider spread increases costs.
How do PIPs Work with the Japanese Yen (JPY)?
Most currency pairs measure PIPs at the fourth decimal place (0.0001). However, JPY pairs are an exception.
For JPY currency pairs, a PIP is measured at the second decimal place (0.01 instead of 0.0001).
Good to know
If GBP/JPY moves from 160.75 to 160.95, that’s a 20 PIP movement.
Understanding this is crucial when trading JPY pairs, as their price movements appear larger than those of other currencies.
What is Forex Pair Volatility?
Volatility refers to how much a currency pair moves in PIPs over a certain period (such as a day).
Highly volatile pairs experience bigger price swings, which creates profit opportunities but also increases risk.
Formula for Volatility:
Volatility = Highest price − Lowest price
For example
If GBP/USD reaches a high of 1.2600 and a low of 1.2555, the daily volatility is 45 PIPs.
Traders often use volatility indicators to manage risk and adjust their position sizes accordingly.
Types of Forex Currency Pairs
Forex pairs are classified into three main categories:
Major Pairs
These involve the most traded currencies, including the British pound, US dollar, euro, and Japanese yen.
- EUR/USD – "The Fiber" (most traded globally)
- GBP/USD – "The Cable" (important for UK traders)
- USD/JPY – "The Ninja"
- USD/CHF – "The Swissy"
Minor Pairs
These don’t include the US dollar but still feature major currencies:
- EUR/GBP – Popular for UK traders
- GBP/JPY – A highly volatile pair
- EUR/AUD – Common in European and Australian markets
Exotic Pairs
These involve a major currency against an emerging market currency, such as GBP/ZAR (British pound vs South African rand).
Exotic pairs tend to be more volatile and have higher spreads.
How to Calculate the Value of a PIP in Forex
The value of a PIP depends on the currency pair, lot size, and exchange rate.
Formula:
PIP Value = (PIP Change × Lot Size) ÷ Exchange Rate
How to Calculate a PIP?
If GBP/USD moves from 1.2500 to 1.2501 (1 PIP change), and you trade 1 standard lot (100,000 units):
PIP Value = (0.0001 × 100,000) ÷ 1.2501 = £8
Forex trading platforms usually calculate PIP values automatically, but understanding the formula helps with risk management.
How to Use Our PIP Calculator UK
Instead of calculating PIPs manually, use our free PIP Calculator to quickly determine your profit or loss.
How It Works:
- Enter the number of PIPs moved
- Select the currency pair (e.g., GBP/USD)
- Enter the trade size (lot size)
- Choose your deposit currency (GBP, EUR, etc.)
Click "Calculate", and the tool will display the exact PIP value for your trade.
What’s the Difference Between a PIP, Pipette, and Lot?
- PIP – The standard unit of price movement.
- Pipette – A fraction of a PIP (1/10th of a PIP) used by brokers with 5 decimal places.
- Lot Size – The number of currency units traded.
Common Lot Sizes:
| Lot Type | Units of Base Currency | PIP Value (GBP/USD, EUR/USD) |
|---|---|---|
| Nano Lot | 100 | £0.01 per PIP |
| Micro Lot | 1,000 | £0.10 per PIP |
| Mini Lot | 10,000 | £1.00 per PIP |
| Standard Lot | 100,000 | £10.00 per PIP |
How to Calculate Profit or Loss Using PIPs
Example of a Profitable Trade
- You buy 2 standard lots of GBP/USD.
- The trade moves 40 PIPs in your favour.
- PIP value per lot = £10, so:
40 × (2×10) = £800 profit
Example of a Losing Trade:
- You sell 5 mini lots of GBP/JPY.
- The trade moves 30 PIPs against you.
- PIP value per lot = £1, so:
30 × (5×1) = £150 loss
Understanding PIP values helps manage risk and set realistic profit targets.
PIPs are essential for measuring market movements and managing risk in Forex trading. By understanding how PIPs work, traders can minimise losses and maximise profits.
To get started, use our free PIP Calculator to calculate your trade values instantly and improve your trading decisions.
How Much is 50 PIPs Worth?
The value of 50 PIPs depends on the lot size:
| Lot Size | PIP Value (GBP/USD) | Profit/Loss for 50 PIPs |
|---|---|---|
| Standard Lot (100,000 units) | £8 per PIP | £400 |
| Mini Lot (10,000 units) | £0.80 per PIP | £40 |
| Micro Lot (1,000 units) | £0.08 per PIP | £4 |
For example
If you trade 1 standard lot of GBP/USD, and it moves 50 PIPs in your favour, your profit is:
50 × 8 = £400
If the trade goes against you by 50 PIPs, you lose £400.
For exact calculations based on different pairs, try using our PIP Calculator UK.
