What is a pip, and how do you read a forex quote?
The unit every forex signal is measured in, and how to turn it into money.
Reading a quote
A forex price such as EUR/USD 1.12340 tells you how many units of the second currency (the quote currency) buy one unit of the first (the base currency). Here, one euro costs 1.12340 US dollars.
Every quote has two prices. The bid is what you receive when you sell, and the ask is what you pay when you buy. The gap between them is the spread, and it is a real cost of every trade.
What a pip is
A pip is the standard step used to measure price movement. For most pairs it is the fourth decimal place, 0.0001. For pairs quoted in Japanese yen it is the second decimal place, 0.01.
If EUR/USD moves from 1.12340 to 1.12440, it moved 10 pips. Many brokers show a fifth decimal place, called a pipette, which is one tenth of a pip.
What a pip is worth
The value of a pip depends on your position size. For a pair quoted in US dollars, such as EUR/USD, one pip on one standard lot (100,000 units) is worth about $10. On 0.20 lots it is about $2 per pip, so a 45-pip move is about $90.
For other pairs the pip value is converted into your account currency at the current exchange rate, so it moves a little over time. PipLadder's calculator does that conversion for you.
- 1.00 lot: about $10 per pip on EUR/USD
- 0.20 lots: about $2 per pip
- 0.10 lots: about $1 per pip
- 0.01 lots: about $0.10 per pip