What are pip and pipette in Forex Trading?

The term "pip," "pipette," and "lots" are frequently used in forex trading. To begin trading in the Forex market, it’s important for you to understand these terms when you’re trading Forex.

• What is a Pip?
• What is a Pipette?
• How to calculate the value of a pip?
   

What is a Pip?

A pip is an abbreviation of Percentage in point. It’s used to track minor changes in currency pairs.

With the exception of the Japanese Yen, which will be the second decimal place, a PIP usually refers to a change of the fourth decimal place in most currency pairs.
 

For example, in EUR/USD, a pip is 0.0001, and in GBP/JPY, it is 0.01.

If EUR/USD pair moves from 1.0652 to 1.0651, it means that EUR has moved 1 pip downward.

If GBP/JPY pair moves from 173.01 to 173.08, it means that GBP has moved 7 pips upward.
 

What is a Pipette?

Some brokers will quote currency pairs with 5 and 3 decimals rather than 4 and 2. Pipettes are decimal places located at the fifth and third decimal places.
 

Using the same example above:

If EUR/USD pair moves from 1.06085 to 1.06089, it means that GBP has moved 4 pipettes upward.

If GBP/JPY pair moves from 173.013 to 173.015, it means that GBP has moved 2 pipettes upward.
 

How to calculate the value of a pip?

The value of a pip = Value change in the currency counter x exchange rate ratio x unit size
 

Example 01

If GBP/USD pair moves from 1.3857 to 1.3858, with a lot size of 10,000 the value of pip will be as below:

0.0001 (USD) x 1 (GBP) / 1.3858 (USD) x 10,000 (units) = 0.7216 GBP

Based on the example above, the value of a pip would be approximately 0.7216 GBP if we trade 10,000 units of GBP/USD pair at 1.3858.

But most of the forex accounts are calculated in USD, how do you know the value of a pip in terms of your account’s currency?
 

Example 02

If you’re using the example above, the targeted currency (USD in this case) is just the quote currency in the pair, you can just divide the “pip value” you found by the corresponding exchange rate ratio:

0.7216 GBP / (1 GBP / 1.3858 USD) = 0.9999 USD

This means for every pip change in this currency pair, you’ll earn or lose approximately 0.9999 USD.
 

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