What Is a Pip? Forex Pricing Explained for Beginners
A pip is the smallest price move in forex. Learn what pips are, how they work, and why they matter for CFD trading. Pip values per lot size, worked out in.
What Is a Pip?
A pip (percentage in point) is the smallest standard price move in forex. For most pairs, it's 0.0001 (one ten-thousandth). For JPY pairs, it's 0.01. A pip is how forex traders measure price movement and calculate profit/loss.
Pip Values
Pip value depends on position size and the quote currency. For a standard lot (100,000 units): 1 pip = $10 for USD-quoted pairs. For a mini lot (10,000 units): 1 pip = $1. For a micro lot (1,000 units): 1 pip = $0.10.
Pips and Spreads
The spread is measured in pips. If EUR/USD bids at 1.1050 and asks at 1.1052, the spread is 2 pips. This is your cost to enter a trade. Lower spreads = lower trading costs. Major pairs like EUR/USD typically have 0.5-1.5 pip spreads.
Why Pips Matter in CFDs
CFD brokers quote forex in pips. Your stop loss, take profit, and position size all reference pips. Understanding pip values is essential for calculating risk: a 20-pip stop on 2 mini lots = $40 risk.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70-80% of retail investor accounts lose money when trading CFDs. Backtesting does not guarantee future results. Always consider whether you can afford the potential loss of your capital.