A pip is a unit of measurement in trading to express the change in value between two currencies.

Let’s look at some examples, using the standard lot of 100,000.

Due to the small size of pips, it is desirable to trade large amounts of a particular currency in order to significant profit.

Here's a quick guide on pips:

Each currency has its own value, so it is necessary to calculate the value of the pip for each currency pair. We also want a constant so we will assume that we want to convert everything to US Dollars.

On all the majors, for a position of 1 lot (100.000 of the base currency) each pip is worth $10)

Example 1: EUR/USD

Open position: Buy 1 lot (100.000) EUR/USD at 1.29530

Close position: Sell 1 lot (100.000) EUR/USD at 1.29930

1.29930 – 1.29530 = 40 pips

40pips x $10 = $400 profit

Example 2: GBP/USD

Open position: Buy 5 lots (500.000) GBP/USD at 1.52270

Close position: Sell 5 lots (500.000) GBP/USD at 1.52990

1.52990 – 1.52270 = 72 pips

72 pips x $50 = $3600 profit

(Remember: for 1 lot each pip is worth $10, for 5 lots each pip is worth 5*$10 = $50)

Let’s calculate the value of a pip where USD is the base currency (the first quoted currency).

Example 3: USD/JPY

Here we take the last 1 pip and multiply it by the value of the trade.

USD/JPY at an exchange rate of 97.503

(.01 / 97.503) * $100.000 = $10.26 per pip

Let’s say you buy 1 lot of $100.000 at 97.503. A few hours later the price moves to 99.424 and you decide to close your trade. You ask for a new quote and are quoted 99.424 / 99.450.

As you are now closing your trade and you initially bought to enter the trade you must sell in order to close the trade. So, the price to close the trade is 99.424.

The difference between 97.503 and 99.424 is 1.921 or 192.1 pips.

Using our formula from before, we now have:

(.01 / 99.424) * $100.000 = $10.06 per pip * 192.1 pips = $1932.53