Where pips sit in a forex quote
A Forex pair is quoted as base/quote. EUR/USD at 1.0850 means one euro buys 1.0850 dollars. The fourth digit after the decimal point is the pip; the fifth, when displayed, is the pipette — one tenth of a pip used in fractional pip pricing.
JPY pairs use a shorter quote convention. USD/JPY at 149.50 has the pip at the second decimal place. A move from 149.50 to 149.51 is one pip — equivalent in proportional weight to a 0.0001 move on EUR/USD. The convention exists because JPY is quoted at materially lower nominal rates than other major currencies, and pip placement keeps the unit of price movement consistent in economic significance across pairs.
How pip value is calculated
Pip value depends on three inputs: position size, pip size, and the relationship between the pair's quote currency and the trader's account currency.
Worked example: EUR/USD at 1.0850, 1 standard Lot size (100,000 EUR), USD account. Pip = 0.0001. Pip value in the quote currency (USD) = 0.0001 × 100,000 = $10 per pip. Because the quote currency matches the account currency, no conversion is needed.
The result is fixed at $10 per pip per standard lot for any pair where USD is the quote: EUR/USD, GBP/USD, AUD/USD, NZD/USD. The exchange rate does not change the answer. Halving the lot to 0.50 halves the pip value to $5; quartering to 0.25 gives $2.50. The math is linear.
- Per pip (one pip = 0.0001 for non-JPY pairs)
- Worked: 1 standard lot EUR/USD
When the account currency is not the quote currency
For USD/JPY at 149.50 on a USD account, the math has one extra step. Position size = 100,000 USD (USD is the base for USD/JPY). Pip = 0.01. Pip value in JPY = 0.01 × 100,000 = ¥1,000 per pip. Converting to USD at the current rate: ¥1,000 ÷ 149.50 = $6.69 per pip per standard lot.
The same pip count produces different cash outcomes than the EUR/USD example. A 25-pip Stop-loss on EUR/USD risks $250 per standard lot ($10 × 25); the same 25-pip stop on USD/JPY risks $167 per standard lot ($6.69 × 25).
For pairs where neither USD nor the account currency appears (e.g. EUR/GBP on a USD account), the conversion adds another step: pip value in the quote currency, converted to the account currency at the relevant cross rate.
Pip value as the input to position sizing
Pip value is the building block for converting a price-distance risk into an account-currency risk. The Spread is one cost layered on top; pip value sets the cash impact per pip; their product, multiplied by the stop distance, is the dollar risk.
Worked example: a $10,000 USD account targeting 1% risk per trade ($100). With a 50-pip stop on EUR/USD at $10/pip: position size = $100 ÷ ($10 × 50) = 0.20 standard lots. Same dollar risk on USD/JPY at $6.69/pip with a 50-pip stop: position size = $100 ÷ ($6.69 × 50) = 0.30 standard lots.
Same dollar risk, different lot size — because pip value differs by pair. This is why position sizing is calculated per trade, not assumed.
Pip versus point — the common confusion
Some platforms — particularly stock and CFD platforms — use "point" to refer to a 1.0 unit of price movement on the underlying. On the S&P 500 at 5,200, a "point" is a $1 move. On forex, "point" is sometimes used informally to refer to a pipette (0.00001 on most pairs).
The lack of standardisation is why TradeBien uses "pip" exclusively for forex, defined precisely. In broker contract specifications, the "tick size" is the minimum price increment. For most major forex pairs, the tick size equals 1 pipette (0.00001) — meaning prices update in pipettes, not pips. The pip is a unit of measurement; the tick is a unit of price change. They differ.