Pips and Pipettes

Here is where we're going to do a little math. You've probably heard of the terms "pips", "pipettes", and "lots" thrown around, and here we're going to explain what they are and show you how they are calculated.

Take your time with this information, as it is required knowledge for all forex traders. Don't even think about trading until you are comfortable with pip values and calculating profit and loss.

What the heck is a Pip? What about a Pipette?

The unit of measurement to express the change in value between two currencies is called a "Pip". If EUR/USD moves from 1.2250 to 1.2251, that is ONE PIP. A pip is the last decimal place of a quotation, given that four decimal places are used for pairs without the Japanese yen. If a pair does include the Japanese yen, then the currency quote goes out two decimal places.

Very Important: There are brokers that quote currency pairs beyond the standard "4 and 2" decimal places to "5 and 3" decimal places. They are quoting FRACTIONAL PIPS, also called pipettes. For instance, if GBP/USD moves from 1.51542 to 1.51543, it moved ONE PIPETTE.

As each currency has its own value, it is necessary to calculate the value of a pip for that particular currency. In the following examples, we will use quotes with 4 decimal places.

In currencies where the U.S. dollar is quoted first, the calculation would be as follows:

1. USD/CHF at 1.5250

   .0001 divided by exchange rate = pip value
   .0001 / 1.5250 = 0.0000655

2. USD/CAD at 1.4890

   .0001 divided by exchange rate = pip value
   .0001 / 1.4890 = 0.00006715

3. USD/JPY at 119.80

   Notice this currency pair only goes to two decimal places (most of the other currencies have four decimal places). In this case, 1 pip would be .01.

   .01 divided by exchange rate = pip value
   .01 / 119.80 = 0.0000834

In the case where the U.S. dollar is not quoted first and we want to get the U.S. dollar value, we have to add one more step.

1. EUR/USD at 1.2200

   .0001 divided by exchange rate = pip value
   So .0001 / 1.2200 = EUR 0.00008196

   BUT we need to get back to U.S. dollars so we add another calculation which is

   EUR x Exchange rate
   So 0.00008196 x 1.2200 = 0.00009999

   When rounded up it would be 0.0001

2. GBP/USD at 1.7975

   .0001 divided by exchange rate = pip value
   So .0001 / 1.7975 = GBP 0.0000556

   BUT we need to get back to U.S. dollars so we add another calculation which is

   GBP x Exchange rate
   So 0.0000556 x 1.7975 = 0.0000998

   When rounded up it would be 0.0001

If your broker doesn't happen to do this, don't worry - you can use our Pip Value Calculator! Aren't we awesome?

In the next section, we will discuss how these seemingly insignificant amounts can add up.

1. How You Make Money in Forex
2. Time to Make Some Dough
3. Pips and Pipettes
4. Lots, Leverage, and Profit and Loss
5. Impress Your Date with Forex Lingo
6. Types of Orders
7. Demo Your Way to Success
8. Protect Yo Self Before You Wreck Yo Self

Forex Training in the School of Pipsology