In forex, prices are quoted to the 4th decimal place (or 2nd for JPY pairs). A pip is the last decimal — the smallest meaningful price move. If EUR/USD moves from 1.0850 to 1.0851, that's 1 pip.
Pip Value
The money value of a pip depends on your position size. For a standard lot (100,000 units) on pairs ending in USD, 1 pip ≈ $10. For a micro lot (1,000 units), 1 pip ≈ $0.10.
| Lot type | Units | Pip value (USD pairs) |
|---|---|---|
| Standard | 100,000 | $10 |
| Mini | 10,000 | $1 |
| Micro | 1,000 | $0.10 |
Calculating Risk with Pips
If your stop is 25 pips away and you want to risk $50, you need a position where 25 pips = $50. That's $2/pip. Since 1 micro lot = $0.10/pip, you need 20 micro lots (2 mini lots).
Gold is different
For XAU/USD (gold), 1 pip = 0.01 price movement, and 1 lot = 100 oz. So a $1 move in gold = 100 pips = $100 per standard lot. Always check the contract specs for the instrument you're trading.