The smallest standard price change in a currency pair, normally the fourth decimal place (0.0001).
A pip - short for 'point in percentage' - is the standard unit of measure for price movement in a forex pair. For the vast majority of pairs it represents the fourth decimal place (0.0001), so a move from 1.0850 to 1.0851 in EUR/USD is exactly one pip. The notable exception is yen-quoted pairs (USD/JPY, EUR/JPY, GBP/JPY), which are priced to only two decimal places, making their pip the second decimal (0.01).
Many platforms now display a fifth decimal place - sometimes called a 'pipette' or fractional pip - that subdivides the standard pip into tenths. This extra precision is used by ECN and STP brokers to quote tighter interbank rates, but the pip remains the standard unit for expressing spreads, stop distances, and trade profitability.
Understanding pip value is essential for cost comparison between brokers. For a standard lot of EUR/USD (100,000 units), each pip is worth USD 10; for a mini lot (10,000 units) it is USD 1. These values shift for pairs where USD is the base rather than the quote currency, or when the account currency differs from USD. Most platforms calculate pip value automatically, but traders should understand the formula to verify position sizing before entering a trade.
Worked Example
EUR/USD moves from 1.0850 to 1.0860 - a 10-pip rise. On a standard lot (100,000 units) with a pip value of $10, that move is worth $100. On a mini lot (10,000 units) the same 10-pip move is worth $10. On a micro lot (1,000 units) it is worth $1. A broker quoting a 1.2-pip spread on EUR/USD costs $12 per standard lot round-turn.