What is a pip? EUR/USD's 153-pip slide last week, explained

Last week the euro had a bad run against the dollar. The European Central Bank's EUR/USD reference rate was 1.1378 on Monday, September 28. By Friday, October 2, it was 1.1225. Early this Monday, Investing.com reported that the euro hit a 17-month low.

Traders do not describe that move as "0.0153". They say EUR/USD fell 153 pips. This lesson explains what a pip is, how to count pips, and why the same pip count can mean very different amounts of money.

What a pip is

A pip is the standard unit for a price change in a currency pair. For most pairs, one pip is the fourth decimal place: 0.0001.

• EUR/USD moves from 1.1225 to 1.1226: that is 1 pip.
• EUR/USD moves from 1.1225 to 1.1325: that is 100 pips.

Pairs that include the Japanese yen are the main exception. The yen is quoted with fewer decimals, so one pip is the second decimal place: 0.01.

Many brokers also show a fifth decimal (or a third for yen pairs). That extra digit is a pipette, one tenth of a pip.

Counting last week's move

To count pips, subtract the two prices and divide by the pip size:

1.1378 − 1.1225 = 0.0153, and 0.0153 ÷ 0.0001 = 153 pips.

The biggest single drop came on Friday: 1.1298 to 1.1225, or 73 pips.

What a pip is worth

A pip count says nothing about money until you add the position size. Forex sizes come in lots:

The formula is simple: pip size × units. For a standard lot, 0.0001 × 100,000 = $10 per pip. That works for any pair where the US dollar is the second currency, such as EUR/USD or GBP/USD.

So a trader who held one standard lot of EUR/USD, long, from Monday's fixing to Friday's would have been down about $1,530. A trader who was short the same amount would have been up by about the same. The pip count is identical. The result depends on direction and size.

A yen example

USD/JPY rose from 156.88 at the September 28 fixing to 157.67 on October 2. With a pip size of 0.01:

157.67 − 156.88 = 0.79, and 0.79 ÷ 0.01 = 79 pips.

Here the second currency is the yen, so the pip value comes out in yen. One standard lot is 100,000 dollars, and 0.01 × 100,000 = ¥1,000 per pip. At 157.67 yen per dollar, ¥1,000 is about $6.34. The 79-pip move is ¥79,000, or roughly $501 at that rate.

Why this matters

Pips let you compare moves across pairs with very different prices. But the dollar value of a pip changes with position size, and for pairs like USD/JPY it changes with the exchange rate too. Always convert pips into money before you decide how much risk a trade carries.

One more caution: the numbers above are ECB reference rates, one official snapshot per business day. Live prices moved more than that during the week. Investing.com had already reported on Friday that the dollar was heading for its first three-week winning streak since January. For the full market story, read FXcash.com's weekly recap of the dollar's run.

Try it yourself

Open a EUR/USD chart on TradingView. Pick any two candles, read their closing prices and count the pips between them. Then work out what that move would mean for a micro lot.