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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

What is a pip in forex trading?

It’s important to understand what currency pair price movements mean for your open foreign exchange (forex) positions. Explore what a pip is in forex trading.

Start trading today. For account opening enquiries call 1800 601 799 between 9am and 6pm (AEDT) weekdays, or email newaccounts.au@ig.com.

Contact us: 1800 601 799

Start trading today. For account opening enquiries call 1800 601 799 between 9am and 6pm (AEDT) weekdays, or email newaccounts.au@ig.com.

Contact us: 1800 601 799

What are pips in forex trading?

Pips in forex trading represent a one-digit movement that’s seen in the fourth decimal place of an FX pair’s price. Pip is short for ‘point in percentage’.

When trading EUR/USD, for instance, and your open position moves from $1.35361 to $1.35371, that’s a one pip movement. In this example, the one-pip movement is seen where the 6 increases to a 7.

Graphic showing a EUR/USD pair and how the pip movement occurs on the fourth decimal place between the two currency pairs.

There are some exceptions to the fourth-decimal-place-movement rule, like the Japanese yen, where a pip movement is seen on the second decimal place.

A ‘baby pip’ or pipette is observed on the fifth decimal place, which is the last 1 in the above example.

What is the difference between a pip and pipette?

The difference between a pip and pipette is the decimal places in the quote. The pip is a one-digit movement of the fourth decimal place. On the other hand, the pipette – also known as the ‘baby pip’ – is seen with the change on the last decimal place.

Graphic showing the difference between a pip and pipette based on the decimal places on the quote

How to calculate pips in forex trading

The exact value of the pip will be determined by several factors. These include the forex pair you’re trading, the exchange rate between the two currencies and the lot size or monetary value of your trade.

To calculate pips in forex trading you multiply a hundredth (1/100) of one percent (1%) or basis point, which equates to 0.0001 for one pip as seen in the equation below:

Graphic showing an equation for calculating of a pip also known as a basis point

FX pair One pip Lot size (base currency) FX pip value per lot (expressed in quote currency) Price of your trade
GBP/USD 0.0001 GBP100,000 USD 10 1.28960
EUR/USD 0.0001 EUR100,000 USD 10 1.96980
AUD/USD 0.0001 AUD100,000 USD 10 1.76780
USD/JPY 0.01 USD100,000 JPY 1000 110.967
USD/CHF 0.0001 USD100,000 CHF 10 0.89460
USD/CAD 0.0001 USD100,000 CAD 10 1.88940
NZD/USD 0.0001 NZD100,000 USD 10 0.99560

How to calculate forex pips in CFDs

To calculate pips when trading forex contracts for difference (CFDs) with us, you’ll multiply one pip (0.0001) by the lot size you’ll be trading. For example, if you’re trading a standard lot size of £100,000 (base currency) units per CFD contract for GBP/USD, one pip movement will be valued at $10 (£100,000 x 0.0001 per pip = $10).

For this example, the value of a pip movement for a mini lot size of £10,000 (base currency) units per CFD is equivalent to $1 (£10,000 x 0.0001 per pip = $1).

Graphic showing equations for calculating pip values for a standard and mini lot sizes when trading forex using CFDs. For standard 0.0001 x 100,000 units of base currency. For minis 0.0001 x 10,000 units of base currency

Example of calculating pips in forex trading

Suppose you trade AUD/USD and open at a quote of $0.68960, a pip movement will be observed on the fourth decimal point (6 in this example). An increase in one pip would result in the quote increasing to $0.68970. This means that the quote currency is weaking against the base currency, resulting in more US dollars needed to buy one Australian dollar.

On the other hand, when trading USD/JPY, the quote will only have two decimal places. The second decimal place will show the change in the pip movement. For example, for a quote of ¥123.45, a one-pip decrease would indicate that the Japanese yen was strengthening against the US dollar, meaning less in the JPY would be required to buy one USD.

How to trade forex with us

  1. Create a live trading account or practise using a demo account
  2. Choose the forex pair you want to trade
  3. Open your position
  4. Monitor your open position

With us, you can trade forex via CFDs on the spot or using options.

This will enable you to take a position on the rise and fall of forex prices.

  • When trading spot forex, you’ll do this at the current market price – there are no fixed expiries
  • Forex options give you the right – but not the obligation – to buy or sell a currency pair at a set price, if it moves beyond that price within a set timeframe

Learn more about the differences between spot forex and forex options

A CFD is a derivative product that uses leverage to increase your exposure to the underlying asset you’re trading. Leverage will amplify the profit or loss you make on your trade, depending on whether the market moves in your favour or against you. Ensure that you manage your risk carefully and trade within your financial means.

Also note that the forex market is volatile, which can cause the currency pair you’re trading to experience a rapid price movement within a short timeframe. Ensure you do your technical and fundamental analysis before you open a position.

If you’re not comfortable with trading yet, you can make use of our free resources on IG Academy to upskill yourself. You can also open a demo account to practise using virtual funds worth $20,000.

FAQs

How much is 10 pips worth?

In forex trading, the worth of 10 pips is dependent on the currency pair that’s being traded, the exchange rate and the lot size. For example, when trading AUD/USD a lot size of US$100,000 units would be valued at US$10 for one pip (0.0001 x US $100,000 = US$10). This means, in this instance, 10 pips would be worth US$100 (US$10 x 10 pips = US$100)

How do you calculate pip profit?

You’ll calculate a pip profit on your open trade by multiplying the number of pips gained by the value of each pip. For example, if you buy GBP/USD at £100,000 on when the currency pair is trading at 1.1234. If the trade increases to 1.1244, you’d have made a profit of 10 pips.

If the pip value in GBP is £0.89 ([0.0001 x £100,000] /1.1234 = £8.90), then the profit of your trade is £89.02 (10 pips x £0.89 = £89.02). In summary, the pip profit is a multiplication of the pips gained in the trade by the price at which each pip is valued.

How do you read pips?

You read pips by reading the movement of the digit in the fourth decimal place. But the Japanese yen (JPY), Czeck koruna (CZK) and Hungarian forit (HUF) are exceptions since they only have two decimal places, so in these cases it’ll be the digit movement of the second decimal.

What are the risks involved when trading forex?

There are risks involved when trading forex with leveraged products like CFDs. Leverage will magnify your profits when the markets work in your favour and will also amplify your losses if they move against you. Ensure that you use our risk management tools.

Develop your forex knowledge with IG

Find out more about forex trading and test yourself with IG Academy’s range of online courses.

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