What is a pip in forex trading?

A pip, short for 'percentage in point,' serves as a unit of measurement to convey the change in value between two currencies.

The number of decimal places used in quoting a forex pair reflects the relative value between the two currencies involved. For most currency pairs, pips typically refer to the fourth decimal place (0.0001). For example, if the EUR/USD moves from 1.1015 to 1.1016, then it has increased by 1 pip. However, forex pairs involving the Japanese yen tend to be quoted with two decimal places (0.01) due to the yen historically having a lower value compared to other major currencies. For example, if the USD/JPY moves from 144.30 to 144.32, it has increased by 2 pips.

What is a pipette?

Despite forex pips equalling either 0.0001 or 0.01, brokers usually display quotes with either 5 or 3 decimal places. These additional decimal places are commonly known as ‘points’ or ‘pipettes’. For instance, if EUR/USD increases from 1.10161 to 1.10162, it signifies an increase of 0.00001 USD, and if USD/JPY increases from 144.323 to 144.324, it has an increase of 0.001. These small movements correspond to one pipette or one-tenth of a pip.