The concept of a pip (short for "Percentage in Point") is the cornerstone of forex trading. Whether you are a beginner learning the basics or an experienced trader fine-tuning your risk management, understanding pips—or pip trong forex in Vietnamese—is essential. This guide explains what pips are, how to calculate pip values across different currency pairs, how trading costs like spreads and commissions affect your pip profit, and how to use pip calculations to control risk effectively.
A pip (Percentage in Point) is the smallest standard unit of price movement in a currency pair. In most forex pairs, a pip represents a one-unit move in the fourth decimal place (0.0001). However, for pairs that include the Japanese yen (JPY), a pip is the second decimal place (0.01) because the yen is quoted with only two decimal places.
For example, if EUR/USD moves from 1.1000 to 1.1001, that is a one-pip movement. If USD/JPY moves from 145.00 to 145.01, that is also a one-pip movement. Pips are the universal language of profit, loss, spread measurement, and stop-loss placement in forex trading.
The term pip trong forex is commonly used by Vietnamese traders to refer to this fundamental unit. Whether you trade in USD, EUR, or VND, understanding pips is critical for calculating potential profits, setting risk parameters, and comparing broker costs.
According to the Bank for International Settlements (BIS) Triennial Central Bank Survey, the forex market handles over $7.5 trillion in daily turnover, making it the world's largest financial market. Within this vast ecosystem, the pip remains the standard increment for price quoting and trade measurement, as noted in educational materials from the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).
The monetary value of a pip depends on three factors: the currency pair you are trading, the exchange rate, and the trade size (lot size). Understanding this relationship is key to managing your risk and calculating potential returns.
For currency pairs where the USD is the quote currency (e.g., EUR/USD, GBP/USD), the pip value is fixed in USD terms per pip per lot. For example, a standard lot (100,000 units) of EUR/USD has a pip value of approximately $10 at an exchange rate of 1.0000. However, for pairs where the USD is the base currency (e.g., USD/JPY, USD/CAD), the pip value varies with the exchange rate.
The general formula for pip value in the quote currency is:
Pip Value (quote currency) = Pip Size × Trade Size
Then, to convert to your account currency (usually USD), you divide or multiply by the relevant exchange rate.
The Federal Reserve and FINRA both emphasise in their investor resources that traders must distinguish between these conventions to avoid costly calculation errors, especially when trading JPY pairs.
Every forex trade incurs costs, and these costs are typically expressed in pips. Understanding them is essential for calculating your net pip profit.
The spread is the difference between the bid (sell) price and the ask (buy) price. It is the primary cost of trading and is measured in pips. For example, if EUR/USD has a bid of 1.1000 and an ask of 1.1002, the spread is 2 pips. This means you start the trade with a 2-pip deficit—the market must move at least 2 pips in your favour before you break even.
Some brokers charge a separate commission per trade, often in addition to the spread. Commissions are typically expressed as a fixed amount per lot (e.g., $5 per standard lot). To convert this to pips, you divide the commission by the pip value. For example, if you pay $5 commission and the pip value is $10, the commission is 0.5 pips.
When you hold a position overnight, you may pay or earn a swap fee based on the interest rate differential between the two currencies. Swap rates are often quoted in pips per night and can significantly affect the profitability of longer-term trades.
Calculating pip value is straightforward once you know the formula and the convention for your currency pair.
Pip Value (USD) = (0.0001 ÷ Exchange Rate) × Trade Size
For EUR/USD at 1.1000, a standard lot (100,000 units): (0.0001 ÷ 1.1000) × 100,000 = $9.09 per pip.
Pip Value (USD) = (0.01 ÷ USD/JPY Rate) × Trade Size
For USD/JPY at 145.00, a standard lot (100,000 units): (0.01 ÷ 145.00) × 100,000 = $6.90 per pip.
If your account is denominated in a currency other than USD, convert the USD pip value using the current exchange rate. For example, if you have a VND-denominated account, multiply the USD pip value by the USD/VND rate.
Use pip value to determine the correct lot size for your risk tolerance:
Trade Size = (Risk Amount in USD) ÷ (Stop-Loss in Pips × Pip Value per Unit)
This formula helps you align your position size with your risk budget, ensuring that a given stop-loss distance does not exceed your maximum allowable loss.
The table below shows pip values for different currency pairs and lot sizes, assuming a USD-denominated account. All values are approximate and illustrative.
| Currency Pair | Exchange Rate | Pip Size | Standard Lot (100,000) |
Mini Lot (10,000) |
Micro Lot (1,000) |
|---|---|---|---|---|---|
| EUR/USD | 1.1000 | 0.0001 | $9.09 | $0.91 | $0.091 |
| GBP/USD | 1.2700 | 0.0001 | $7.87 | $0.79 | $0.079 |
| AUD/USD | 0.6600 | 0.0001 | $15.15 | $1.52 | $0.152 |
| USD/JPY | 145.00 | 0.01 | $6.90 | $0.69 | $0.069 |
| EUR/JPY | 159.50 | 0.01 | $6.27 | $0.63 | $0.063 |
| USD/CAD | 1.3600 | 0.0001 | $7.35 | $0.74 | $0.074 |
Note: Pip values change with exchange rates. These figures are illustrative; always calculate using the current rate for your specific trade.
Scenario: You buy 1 standard lot (100,000 units) of EUR/USD at 1.1000. The price rises to 1.1050, a gain of 50 pips.
Calculation: Pip value = (0.0001 ÷ 1.1000) × 100,000 = $9.09 per pip. Total profit = 50 pips × $9.09 = $454.50.
Scenario: You sell 1 mini lot (10,000 units) of USD/JPY at 145.00, with a stop-loss at 145.50 (50 pips risk). Your account is in USD.
Calculation: Pip value = (0.01 ÷ 145.00) × 10,000 = $0.69 per pip. Total risk = 50 pips × $0.69 = $34.48.
Advanced Scenario: Hedging with Pip Value
A trader with a $10,000 account wants to risk no more than 2% ($200) per trade. They want to trade GBP/USD with a stop-loss of 60 pips.
Step 1: Determine the required pip value: $200 ÷ 60 pips = $3.33 per pip.
Step 2: At GBP/USD = 1.2700, pip value per unit = (0.0001 ÷ 1.2700) = 0.00007874. Required lot size = $3.33 ÷ 0.00007874 = 42,300 units (approximately 0.42 standard lots).
The trader would enter with 0.42 lots (42,300 units) to keep risk within the $200 limit. This example demonstrates how pip value directly determines position sizing.
Use this checklist before every trade to ensure you have accurately calculated your pip value and costs:
Reality: Pip value varies by currency pair, exchange rate, and lot size. It is not a fixed dollar amount. A pip in EUR/USD is worth a different amount than a pip in USD/JPY.
Reality: Many brokers quote to 5 decimal places for non-JPY pairs and 3 decimal places for JPY pairs. The last decimal is a pipette (1/10 of a pip), not a full pip.
Reality: Leverage does not change the pip value. It only changes the margin required to open a trade. The pip value is determined by trade size and exchange rate.
Reality: Spreads are a proportional cost. For a 2-pip spread, you lose 2 pips of value regardless of your lot size. For large lots, the absolute cost is higher, making spreads even more significant.
Reality: A risk-reward ratio (e.g., 1:2) is only meaningful when both the risk and reward are expressed in the same currency. You need the pip value to convert pips into actual dollars (or your account currency) to calculate real risk and reward.
Failing to understand pip value is one of the most common causes of unexpected losses in forex trading. The CFTC and NFA have documented that many retail traders underestimate the monetary impact of pip movements, leading to overleveraging and account blow-ups. Key risks include:
To manage these risks effectively, disciplined traders implement the following controls: