The amount of currency pairs’ price changes and trading symbols in the forex market is displayed based on pips meaning. Understanding the pips meaning is essential for accurately determining the extent of these price fluctuations. Moreover, a thorough grasp of the pips meaning in trading is crucial for calculating the profit or loss of a trade.
What is a pip in forex? (Pips meaning)
The pips meaning is an acronym for “Price Interest Point” or “Point in Percentage,” signifying the smallest unit of price changes in the forex market. Essentially, the pips meaning forex serves as the standard unit for expressing asset price movements and quantifying trading profits or losses. This pip definition forex provides a uniform scale for traders to communicate price changes.
The forex what is a pip question is one of the first every trader asks. The pip meaning forex helps you understand how small price movements affect your account. Many beginners search for what is a forex pip to grasp the foundation of trading.
Pip in brokers
For enhanced precision in price calculations, certain brokers use a smaller unit known as a “pipette.” One pipette represents one-tenth of a pip, meaning that one pip is equal to 10 pipettes. This finer measurement allows for more detailed pricing.
Consequently, brokers can be categorized based on the number of digits they display in their quotes: those that use four digits are referred to as “four-digit brokers,” while those that include an additional digit for the pipette are known as “five-digit brokers.”
Four-digit brokers, often the more traditional ones, present these changes up to four decimal places. This level of precision is referred to as a “Pip.” For instance, if the exchange rate for the EUR/USD pair is listed as 1.2362, the fourth decimal place—represented by the digit ‘2’—is the Pip.
On the other hand, five-digit brokers offer a higher degree of accuracy by showing price changes up to five decimal places, known as a “Pipette.” Taking the same EUR/USD pair as an example, a rate of 1.23622 would mean that the fifth decimal place—indicated by the last ‘2’—is the Pipette. This additional decimal place allows for a more granular view of price movements, catering to traders who require more detailed information for their strategies.
Usually, the fourth decimal place in currency pairs is known as pip. This issue is valid for both 5-digit and 4-digit broker types. But in currency pairs where one side is the yen (JPY), two digits (in 4-digit brokers) or three digits (in 5-digit brokers) are displayed after the decimal point. In these currency pairs, the pip position is the second digit after the decimal point. For example, when the USDJPY currency pair is traded at 149.765, the second digit after the decimal point in the pip position is 6.
In the picture below, you can see the price of several currency pairs in Trendo Broker. Since Trendo broker is a 5-digit broker, in these symbols, the pip position is marked with purple, and the pipette position is marked with blue.
Pip’s position in different symbols
Trendo Broker offers a diverse range of trading symbols beyond currency pairs. The pips meaning varies across metals, cryptocurrencies, energy, and indices. The pip meaning forex changes depending on the instrument, yet the core pips meaning in trading stays consistent.
Read more: Types of financial markets and their trading hours
Pip’s position in gold (XAUUSD)
Gold is one of the most popular trading symbols in the forex market. The price of gold is usually described in dollars and up to two decimal places. For example, if the price per ounce of gold is listed as $1930.50, the final digit—‘0’ in this case—represents the pip or point. The number after the decimal point in the pip position is the number 5.
Read more: Factors affecting the price of gold in the global markets and the forex market
Pip’s position in Bitcoin
In the context of Bitcoin trading, the pip and pipette positions are uniquely defined. For Bitcoin, the last digit before the decimal point represents the pipette position, while the second-to-last digit signifies the pip position. Suppose the bitcoin price is 30251.70, meaning the number 1 is in the pipette position and the in the pip position is number 5.
Pip’s position in oil
In the oil symbol (CRUDE OIL), the two digits after the decimal point are in the pip position. For example, if the oil price is $75.83, the number 3 is in the pip position.
Pip’s position in the Dow Jones and Nasdaq indices
The pip position in Dow Jones and Nasdaq is the last digit (the number before the decimal), and the first digit after the decimal is in the pip position.
In the case of famous indices like the Dow Jones and Nasdaq, the pip and pipette positions are determined by the digits surrounding the decimal point. The last digit before the decimal point is considered the pip position, while the first digit following the decimal point occupies the pipette position.
Suppose the Dow Jones price is 33,124.56 and the Nasdaq price is at 13,724.56, so number 5 is in the pipette position, and number 4 is in the pip position.
Pip changes calculation in currency pairs
In the forex market, price changes are described based on pips. It is enough to identify only the pip position in the desired symbol and determine the price difference based on it to calculate the pip changes. For instance, consider the USDCAD currency pair with an initial rate of 1.38021. Here, ‘2’ denotes the pip position, and ‘1’ indicates the pipette position. After some time, this symbol’s price will increase to 1.38521. In this case, it is said that the USDCAD currency pair’s price increased by fifty pips or 500 pipettes.
In another example, let’s assume that USDJPY is at the price of 149.857, and after some time, this currency pair’s price will reach 148.436. In this case, it is said that this currency pair’s price has decreased by 142.1 pips or 1421 pipettes.
Profit and loss calculation in a trade
To calculate the profit or loss of a trade, you must multiply the following three parameters:
- Trading volume (Lot)
- Price movement rate based on pip
- Pip value
In our previous discussions, we’ve covered the first two parameters. The computation for the third parameter, however, is a bit more complex. If you prefer not to delve into these calculations, you can skip ahead to the “Forex Calculator” section. This tool will allow you to easily compute your potential profits or losses.
The pip value depends on the symbol type, trading volume, and rate. To calculate the pip value, you must consider the following situations:
1. The counter currency in the currency pair you intend to trade should be the base currency of your trading account. For example, let’s say our account is based on USD, and we want to trade the EURUSD currency pair. In this case, the value of each pip will be $10.
2. The base currency in the currency pair you intend to trade should be the base currency of your trading account. For example, let’s say our account is based on USD, and we want to trade the USDCAD currency pair. In this case, the value of each pip will be $10, which you need to divide by the current rate of the currency pair. In this case, the USDJPY currency pair is an exception, and the value of each pip in this symbol is $1000, which you must divide by the current rate of the currency pair.
3. If the currency pairs you intend to trade do not include the base currency of your account, the calculation process becomes slightly different. Similar to the first case, after performing the necessary computations, you’ll need to convert your profit or loss into dollars. This conversion should be done using the current exchange rate.
An example of how to calculate profit or loss
For instance, suppose you’ve initiated a buy trade on the USDCAD currency pair with a volume of 0.1 lot at a rate of 1.35075. Now, let’s say this currency pair has increased by 80 pips. To calculate the profit from this trade, you would follow these steps:
1. Multiply the volume of the trade (0.1 lot) by the increase in pips (80).
2. Multiply the result by $10, which represents the value of each pip.
3. Finally, divide the total by the current price (1.35100).
Following these steps, the profit from this trade would amount to $59.21.
Read More: What is the Lot or trading volume in the forex market?
In a second example, imagine two traders who simultaneously enter a trade on the EURUSD symbol at Trendo Broker, with an entry price of 0.09106. Now, the price of this currency pair has risen to 0.09261, indicating an increase of 15.5 pips or 155 pipettes.
The first trader, who entered a buy trade with a volume of 1 lot, would now see a profit of $155 on his trade. The second trader, who also entered a buy trade but with a smaller volume of 0.1 lot, would be looking at a profit of $15.5.
Spread, Swap, and Their Impact on Profit and Loss
Two important trading costs that directly reduce (or increase) your final profit and loss are spread and swap. Thus, understanding the concept of pips meaning and what is the value of a pip in forex are necessary. Ignoring them can turn seemingly profitable strategies into losing ones.
How Spread Affects Potential Profit
Spread is your entry cost. You always buy at the higher ask price and sell at the lower bid price. The wider the spread, the more the market must move in your favor before you break even.
Trendo gives you a clear edge with floating spreads from 0.0 pips on major pairs like EURUSD and about 0.5 pips on Gold. This is especially valuable for scalpers and day traders who target small price movements.
Role of Swap/Rollover Fees
If you hold a position past 5 PM New York time, you pay or receive a daily swap fee. This can accumulate quickly on multi-day trades. Some pairs offer positive swaps in one direction, creating extra income. Swap fees accumulate daily and affect the pips meaning in trading over longer holds.
Trendo offers competitive swap rates across instruments and provides swap-free Islamic accounts so traders can hold positions without rollover concerns.
Example: Spread Impact on Short-Term Trades
You’re scalping 1 standard lot on EUR/USD with a 7-pip take-profit.
- With a 1-pip spread: The price needs to move 8 pips for you to hit target.
- With Trendo’s 0.0-pip spread: You hit target after just 7 pips.
Over 20 trades per day, that 1-pip difference can mean hundreds of dollars in extra profit or loss per month.
Using Pip Calculations for Risk Management
Pip calculations are essential for effective risk management. The pips meaning allows traders to precisely quantify risk and reward.
Risk Per Trade Using Pip Distance
Traders commonly limit risk to a fixed percentage of account balance on each trade. The most practical way is to calculate position size directly from the stop-loss pip distance.
Practical steps:
- Decide the maximum dollar risk for the trade (for example, 1% of your account balance).
- Measure the stop-loss distance in pips from your planned entry price.
- Calculate position size with this formula:
Lots = Risk amount ($) ÷ (Stop-loss pips × Pip value per lot)
Real example:
$25,000 account → 1% risk = $250
Stop-loss = 40 pips on EUR/USD
Lots = 250 ÷ (40 × 10) = 0.625 standard lots
If the stop-loss is hit, the loss is exactly $250 — nothing more, nothing less.
Setting Stop-Loss and Take-Profit Using Pip
Define your stop-loss price according to your trading plan. Count the exact number of pips between the entry price and that stop-loss price. Use this pip distance to calculate the position size that matches your chosen risk amount.
For the take-profit, select the reward distance in pips that matches your desired target. Place the take-profit order exactly that number of pips from the entry. Measuring pip distance for both stop-loss and take-profit ensures your strategy remains measurable and consistent.
This simple method works for any trading style, scalpers, day traders, swing traders or long-term position traders, because it uses only the pip distance from entry.
Risk/Reward Ratio Examples
This is where pip calculations become practical and powerful. Let’s break it down clearly.
Example I: 1:1 Risk/Reward
Stop-loss: 20 pips
Take-profit: 20 pips
If you win 50% of trades:
5 wins × 20 pips = 100 pips
5 losses × 20 pips = -100 pips
Net result: Break-even (before spread/commission)
This structure leaves little margin for error.
Example II: 1:2 Risk/Reward
Stop-loss: 25 pips
Take-profit: 50 pips
If you win only 40% of trades:
4 wins × 50 pips = 200 pips
6 losses × 25 pips = -150 pips
Net result: +50 pips
You can be wrong more often than right — and still grow your account.
Example III: Practical Trade Scenario
- Balance: $10,000
- Risk per trade: 1% ($100)
- Stop-loss: 40 pips
Position sizing:
$100 ÷ 40 pips = $2.50 per pip
Now set take-profit at 80 pips (1:2 ratio).
If trade wins:
80 pips × $2.50 = $200 gain
If trade loses:
40 pips × $2.50 = $100 loss
Over 10 trades with 50% win rate:
5 wins × $200 = $1,000
5 losses × $100 = -$500
Net gain = $500
This demonstrates why structured pip-based risk/reward planning is more important than having a high win rate.
Common Mistakes Traders Make with Pips and Profit/Loss
Even experienced traders lose money due to simple but costly errors when calculating pips and profit/loss. Avoiding these three mistakes can immediately improve consistency and protect capital.
Ignoring Spread in Profit Calculation
Many traders calculate expected profit based only on the pips to their take-profit target and forget the spread.
Real example: You target 25 pips profit on EUR/USD. With a 1.2-pip spread, your actual net gain is only 23.8 pips. Over 30 trades per month, this hidden cost adds up to hundreds of dollars in lost profit.
Miscalculation of Pip Value
Traders often assume every symbol has the same $10 per pip value (standard lot). This is wrong for JPY pairs (≈$8.30), gold/XAUUSD ($1), and different lot sizes. Using the wrong value creates inaccurate risk numbers and surprising P&L results.
Errors in Lot Size and Impact on P&L
The most dangerous mistake is an incorrect lot size based on a wrong pip value or stop-loss distance, derived by a misunderstanding of pips meaning.
Real impact: A 40-pip stop-loss calculated with the wrong pip value can turn a planned 1% risk into a 5–8% loss in seconds.
Quick fix: Always verify the spread, exact pip value for the symbol, and apply the lot calculation formula before clicking Buy or Sell.
What is a forex calculator?
If you prefer not to calculate manually, use the forex calculator. It handles the pips meaning and what is the value of a pip in forex instantly. Trendo’s Forex calculator is a great tool to consider. It’s designed to simplify the process for you. All you need to do is input the specifics of your trade, such as the trading volume, entry price, and exit price. Once you’ve entered these details, simply click on the ‘calculate’ option. The calculator will then display your potential profit or loss.
To use Trendo’s Forex calculator, click on the following link: Trendo Forex Calculator
As shown in the image below, let’s say we entered a buy trade in the gold symbol (XAUUSD) at the 2111.53 price with a volume of 0.18 lots, and now gold is trading at the 2118.68 price.
Therefore, by inputting these parameters into the calculator – the trading volume, entry price, and current price – the profit from this trade can be accurately computed. In this case, the calculated profit for this particular transaction would be $128.70.
Summary
This article explained the pips meaning, pips meaning forex, pip meaning in forex, what is a forex pip, and every aspect of the pips meaning in trading. We’ve also introduced the Trendo Forex calculator, a handy tool for quickly determining your potential profits or losses.
Understanding the pips meaning is crucial for any professional trader. It’s not just about knowing what it is, but also understanding how it’s calculated. This knowledge is key to implementing effective risk management strategies in your trading activities.
If you have any further questions or uncertainties, remember that Trendo Broker offers 24/7 support through your trading platform. Don’t hesitate to reach out to them for assistance.
