What Is A Pip

A pip (short for “percentage in point”) is the smallest standard unit used to measure a price change in forex. Learning how pips map to actual rand gained or lost is the foundation of position sizing and risk management. Without it you are trading blind.

How pips are defined

For most currency pairs, a pip is the fourth decimal place of the quote. If EUR/USD moves from 1.0850 to 1.0851, that is a 1-pip move. For pairs that include the Japanese yen, a pip is the second decimal place, so if USD/JPY moves from 150.20 to 150.21, that is also 1 pip.

Many modern brokers also show a fifth decimal (or third for JPY pairs). That extra digit is called a pipette or fractional pip and is worth one-tenth of a pip. It exists so brokers can quote tighter spreads.

Calculating the value of a pip

The monetary value of a pip depends on three things: the pair, your position size, and the currency your account is denominated in.

A standard lot is 100,000 units of the base currency. A mini lot is 10,000 units, and a micro lot is 1,000 units. Most new traders should be using micro lots until they have built a track record.

For any pair quoted against the US dollar (e.g. EUR/USD, GBP/USD), the pip value on a standard lot is roughly $10, on a mini lot about $1, and on a micro lot about $0.10. If the rand is at 18.50 to the dollar, a $10 pip is worth about R185, and a $0.10 pip about R1.85.

Worked examples in ZAR

Example 1 — EUR/USD, micro lot. You buy 0.01 lots (a micro lot) of EUR/USD at 1.0850 and exit at 1.0870. That is a 20-pip gain. Pip value is roughly $0.10, so gross profit is $2.00. At a USD/ZAR rate of 18.50, that is about R37.

Example 2 — USD/ZAR, mini lot. You sell 0.10 lots of USD/ZAR at 18.80 and cover at 18.60. That is a 2,000-pip move (remember USD/ZAR pips are still the fourth decimal: 18.8000 to 18.6000). On a mini lot in USD/ZAR, each pip is worth about R1, so the gross profit is roughly R2,000. Notice how exotic pairs move in much larger pip counts than the majors — a 2,000-pip move on USD/ZAR is routine over a few days, but 2,000 pips on EUR/USD would be a multi-month trend.

Example 3 — GBP/JPY, micro lot. You buy 0.01 lots of GBP/JPY at 190.00 and close at 190.50. That is 50 pips. On a micro lot with JPY pairs the pip is roughly $0.07, so gross profit is about $3.50, or R65 at an 18.50 USD/ZAR rate.

Spreads, commissions, and swaps in pips

Brokers quote their trading costs in pips. A 1-pip spread on EUR/USD means you start every trade 1 pip in the red, and the market needs to move 1 pip in your favour before you break even. Overnight swap rates — the interest adjustment applied when you hold a position past 22:00 UTC — are usually quoted in pips per standard lot per night too.

When you compare brokers, do not just look at the headline spread. Check typical spreads during high-volatility periods (news releases, London/New York open), any per-lot commission, and the swap rates on the pairs you actually trade.

Why this matters for risk

Once you know the rand value of a pip for the size you are trading, you can work backwards from the money you are willing to lose to a stop-loss distance in pips. For example, if you are willing to risk R200 on a trade and you are trading a micro lot of EUR/USD where each pip is about R1.85, your stop-loss should be no wider than about 108 pips. That single calculation is the bridge between theory and a trade plan, and it is what the next lesson — risk management — builds on.

Quick reference

Pip = 4th decimal place for most pairs, 2nd decimal for JPY pairs.
Pipette = one-tenth of a pip (5th decimal / 3rd for JPY).
Standard lot = 100,000 units → ~$10 per pip on USD-quoted majors.
Mini lot = 10,000 units → ~$1 per pip.
Micro lot = 1,000 units → ~$0.10 per pip (≈ R1.85 at USD/ZAR 18.50).

This lesson is for education only and is not financial advice. Leveraged forex trading carries substantial risk of loss.