Pips, pipettes and the fourth decimal
Most currency pairs are quoted to four decimal places. The fourth decimal is the pip. Many brokers add a fifth decimal — that extra digit is a pipette, or a tenth of a pip, and it exists so spreads can be priced more precisely.
Pairs that include the Japanese yen are quoted to two decimals instead, because one yen is worth far less than one dollar or euro. On USD/JPY the second decimal is the pip.
- EUR/USD 1.0850 → 1.0851 = 1 pip
- USD/JPY 156.20 → 156.21 = 1 pip
- GBP/USD 1.27505 → 1.27510 = 0.5 pip (5 pipettes)
What one pip is actually worth
Pip value depends on three things: the pair, your position size, and the currency your account is denominated in. The rule of thumb for USD-quoted pairs is simple because the pip value is fixed in dollars.
- Standard lot (100,000 units): about $10 per pip
- Mini lot (10,000 units): about $1 per pip
- Micro lot (1,000 units): about $0.10 per pip
You buy 2 standard lots of EUR/USD at 1.0850 and close at 1.0880. That is 30 pips × $10 × 2 lots = $600 profit before spread and swap.
Why pips matter more than percentages here
Forex traders talk in pips rather than percentages because leverage makes the percentage move on the pair almost meaningless on its own. A 30-pip move is roughly 0.28% on EUR/USD — but at 1:30 leverage that is around 8% of your margin.
This is exactly why pip value and position size have to be worked out before the trade, not after.
Spread is measured in pips too
The difference between the bid and the ask is the spread, and it is quoted in pips. A 0.8-pip spread on EUR/USD means you start every trade 0.8 pips underwater. On a scalping strategy taking 5-pip targets, that spread is 16% of your gross target — which is why spread costs deserve the same attention as the entry itself.