Pip stands for “price interest point.” It is the unit of measurement to express the change in value between two currencies.

Let’s say that the current AUD/USD price is 1.0235. If the price rises to 1.0236 or falls to 1.0234, this is a movement of 0.0001, or 1 pip. If the current price of USD/JPY is 81.33, and if the price rises to 81.34 or falls to 81.32, this is a movement of 0.01, or 1 pip. One pip is thus the smallest change in value for any given forex quote, whether it’s quoted to two or four decimal places.

Here are more examples:

  • When the EUR/USD quote moves up from 1.3255 to 1.3287, it is a movement of 32 pips.
  • When the EUR/USD quote moves down from 1.3255 to 1.3138, it is a movement of 117 pips.
  • When the USD/CHF quote moves up from 0.9148 to 0.9263, it is a movement of 115 pips.
  • When the USD/CHF quote moves down from 0.9148 to 0.9126, it is a movement of 22 pips.
  • When the USD/JPY quote moves up from 80.55 to 80.87, it is a movement of 32 pips.
  • When the USD/JPY quote moves down from 80.55 to 79.78, it is a movement of 77 pips.

Many brokers today extend forex quotes beyond the standard four and two decimal places, to five and three decimal places respectively. As an example, a broker could quote USD/CAD as 1.00583. If the USD/CAD quote rises to either 1.00584 or falls to 1.00582, the movement is termed 1 pipette.

Similarly, if USD/JPY is quoted as 81.338 and if the currency pair rises to either 81.339 or falls to 81.337, the movement is termed 1 pipette as well.

How Do We Calculate the Value of One Pip?

Different currencies have different values. Hence, the value of a pip is different for each currency. The first thing to take note of when calculating pip value is that for most forex quotes, particularly the seven majors, the U.S. dollar is either the base currency or the counter currency.

In the USD/CHF quote, the U.S. dollar is the base currency. In the AUD/USD quote, the U.S. dollar is the counter currency.

Let’s calculate the pip value for each example, starting with the U.S. dollar as the base currency (see Examples 1.1 and 1.2).

EXAMPLE 1.1: VALUE OF 1 PIP

Let’s take the current price of USD/CHF as 0.9235. The smallest movement for a pip is thus 0.0001.
The formula for calculating pip value is:
Pip value = Smallest decimal move * Contract Size
0.0001 * 100,000 = 10 CHF converted to USD $ pip value will be 10.82$ based on the current market price at that moment.

To determine the pip value for Japanese yen pairs, let’s look at the next example. If the price of USD/JPY was 81.54 and a current price of USD/JPY is 81.55, the smallest movement for a pip is 0.01.
The formula for calculating pip value is:
Pip value = Smallest decimal move * Contract Size
0.01 * 100,000 = 1000 JPY converted to USD $ pip value will be 12.26$ based on the current market price at that moment.

EXAMPLE 1.2: VALUE OF 1 PIP

Let’s look at how pip value is determined when the U.S. dollar is the counter currency.
If the AUD/USD is now 1.1237, then:
Pip value = Smallest decimal move * Contract Size
0.01 * 100,000 = 10 USD$