Every trade you take in forex is measured in pips. The price moves a pip. You win a pip or lose a pip. The pip is the atom of forex price action: too small to ignore, too important to misunderstand.
For South African traders, knowing what a pip is and what one pip is worth on USD/ZAR versus EUR/USD is the difference between trading deliberately and trading blind. The size of a pip changes with the pair. The value of a pip changes with your lot size.
This guide breaks down what a pip is, how to calculate it on every pair type, and what one pip actually costs you in dollars or Rands at typical trade sizes.
What Is a Pip in Forex Trading?
A pip is the smallest standard unit of price movement in a currency pair.
For most pairs (EUR/USD, GBP/USD, USD/CHF, AUD/USD, USD/ZAR), one pip equals 0.0001: the fourth decimal place. For Japanese yen pairs (USD/JPY, EUR/JPY, AUD/JPY, GBP/JPY), one pip equals 0.01: the second decimal place. The yen has historically been quoted to fewer decimals, reflecting its lower per-unit value.
The pip is a unit of measurement, not a value. Two pips of movement on EUR/USD is 0.0002 in price terms: the same fraction of price regardless of how many lots you trade. But the dollar (or Rand) value of that two-pip move scales with your position size. That is where pip value enters the conversation.
How to Calculate a Pip
The math is simple once you know which decimal to count from.
- Non-JPY pair: 1 pip = 0.0001
- JPY pair: 1 pip = 0.01
To convert between two prices into pips:
- EUR/USD: 1.1053 to 1.1055 = (1.1055 − 1.1053) ÷ 0.0001 = 2 pips.
- USD/JPY: 156.42 to 156.50 = (156.50 − 156.42) ÷ 0.01 = 8 pips.
- USD/ZAR: 18.4523 to 18.5023 = (18.5023 − 18.4523) ÷ 0.0001 = 500 pips. (USD/ZAR is non-JPY, so 0.0001 is one pip; the bigger absolute price means more pips in the same dollar move.)
If you see a price quoted with an extra decimal at the end (EUR/USD at 1.10557, for example), the fifth decimal is called a pipette: one-tenth of a pip. More on that below.
Pip Value by Lot Size
A pip on EUR/USD is always 0.0001 of price. But that 0.0001 means very different amounts in dollars depending on how many units of EUR/USD you actually trade. This is where pip value lives.
Standard lot sizes:
- Standard lot: 100,000 units of the base currency.
- Mini lot: 10,000 units.
- Micro lot: 1,000 units.
- Nano lot: 100 units (rare; some brokers offer this on cent accounts).
For most non-JPY pairs, the pip value works out to approximately:
| Lot size | Units | Pip value (non-JPY pair) | 2-pip spread cost |
|---|---|---|---|
| Standard | 100,000 | ~$10 per pip | ~$20 |
| Mini | 10,000 | ~$1 per pip | ~$2 |
| Micro | 1,000 | ~$0.10 per pip | ~$0.20 |
| Nano | 100 | ~$0.01 per pip | ~$0.02 |
The exact dollar value depends on the pair and the quote currency. For EUR/USD trading at 1.1055, one pip on a standard lot equals exactly $10. For USD/JPY trading at 156.42, one pip on a standard lot equals roughly 1,000 yen, which converts to approximately $6.40 at that exchange rate.
Pips on Different Currency Pairs
Different pair types have different pip mechanics:
- Major pairs (EUR/USD, GBP/USD, USD/CHF, USD/CAD): 1 pip = 0.0001. Spreads 0.5 to 1.5 pips. Pip value on a standard lot is approximately $10.
- Yen crosses (USD/JPY, EUR/JPY, GBP/JPY): 1 pip = 0.01. Spreads 0.7 to 2 pips. Pip value on a standard lot is approximately ¥1,000 (≈$6 to $7 at current rates).
- Cross pairs (EUR/GBP, AUD/CAD): 1 pip = 0.0001 (or 0.01 if a JPY appears in the quote). Spreads wider than the majors.
- USD/ZAR: 1 pip = 0.0001. Spreads commonly 50 to 150 pips. Pip value on a standard lot ≈ R10 (1 pip × 100,000 units of USD × 0.0001 = $10 worth, converted to Rand at current USD/ZAR rate).
For South African traders thinking about USD/ZAR: a typical 100-pip spread on a standard lot equals roughly R1,000 paid the moment you open the position. That is the unique tax of trading the local pair. See our guide on what a spread is in forex for the full mechanics.
Pipettes and Fractional Pips
Many modern broker platforms quote prices to five decimals on non-JPY pairs and three decimals on JPY pairs. The extra decimal is the pipette: one-tenth of a pip.
EUR/USD at 1.10557 means 1.1055 pips plus 7 pipettes. The fifth decimal is the pipette position. Pipettes do not change the pip math; they just give you finer pricing granularity at execution.
Some scalping strategies trade pipette-level moves. Most retail traders ignore them and round to whole pips, which is fine for everything except very short-term high-frequency trading.
How Pips Translate to Profit and Loss
The conversion from pips to money is one formula:
P&L = Pips × Pip Value × Number of Lots
Worked examples:
- 1 standard lot of EUR/USD, +20 pip move: 20 × $10 × 1 = $200 profit.
- 2 mini lots of EUR/USD, +20 pip move: 20 × $1 × 2 = $40 profit.
- 1 standard lot of USD/ZAR, +100 pip move: 100 × R10 × 1 = R1,000 profit (approximate).
- 1 micro lot of USD/JPY, +50 pip move: 50 × $0.06 × 1 = $3 profit (approximate, depends on JPY rate).
Loss math is the inverse. The cost of being wrong scales linearly with your position size. This is why position sizing matters more than entry timing for most retail traders. And this is where leverage in forex enters the conversation: leverage controls how big your position can be relative to your account.
Practical Examples for South African Traders
Three scenarios you will actually encounter on a South African trading desk:
Scenario 1: USD/ZAR on a mini lot
You open 1 mini lot of USD/ZAR. Spread is 80 pips. Cost to open: 80 × R1 (approximately) × 1 mini lot = R80. For the trade to break even, USD/ZAR must move 80 pips in your favour. A 200-pip target translates to R200 profit, of which R80 was already paid in spread. Spread cost as a percentage of break-even target: 40 percent.
Scenario 2: EUR/USD scalp on a micro lot
You scalp 1 micro lot of EUR/USD. Spread is 1 pip = $0.10 cost. Your target is 10 pips = $1 profit. Spread as percentage of target: 10 percent. Tighter spread plus larger lot would shift this ratio in your favour.
Scenario 3: USD/JPY swing on a standard lot
You hold 1 standard lot of USD/JPY for two days. Spread is 0.8 pips. Pip value is approximately $6.50. Cost to open: 0.8 × $6.50 = $5.20. Your 50-pip swing target equals $325 profit. Spread as percentage of target: 1.6 percent.
The pattern: as your lot size grows and your target grows, spread cost as a percentage of the target shrinks. Position sizing is the lever that controls how much pip math eats into your edge.
For the wider trading cost picture, see our overview of forex spreads and leverage in forex. For the tax angle on Rand-denominated profits, see tax implications for South African forex traders.
Trading Terms You’ll See Here
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Pip
The smallest standard unit of price movement in a currency pair. Equals 0.0001 for most pairs and 0.01 for JPY pairs.
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Pipette
One-tenth of a pip. Modern broker platforms quote a fifth decimal on non-JPY pairs and a third decimal on JPY pairs to show pipettes.
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Lot
The standardised trade-size unit in forex. A standard lot is 100,000 units of the base currency; a mini lot is 10,000; a micro lot is 1,000; a nano lot is 100.
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Pip Value
The dollar (or Rand) amount one pip of price movement is worth on your position. Scales with lot size and depends on the quote currency.
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Base Currency
The first currency in a forex pair quote (the EUR in EUR/USD). The pair price tells you how many units of the quote currency one unit of the base costs.
The Atomic Unit of Every Trade
A pip is the smallest standard unit forex measures. Two pips of price movement is the same physical thing whether you are a beginner on a micro lot or a hedge fund moving standard lots. What changes is what those two pips are worth to you.
Every trade decision compresses down to pip math. How many pips am I willing to risk? How many pips do I need to win to make this trade worthwhile? Is my pip cost (spread plus commission) too high a fraction of my pip target?
Traders who measure their trades in pips first and Rands second tend to make better decisions. The unit is small enough to think clearly about. The Rand value is large enough to feel.
So the real question is not whether you understand pips. It is whether you actually calculate pip cost before you click buy.
Key Takeaways: What Is a Pip in Forex
- Definition: A pip is the smallest standard unit of price movement: 0.0001 for most pairs, 0.01 for JPY pairs.
- Pip value scales with lot size: ~$10 standard, $1 mini, $0.10 micro, $0.01 nano (non-JPY pairs).
- Pipettes are one-tenth of a pip; some platforms show them as the fifth decimal.
- USD/ZAR has 1 pip = 0.0001 but spreads of 50 to 150 pips, making each trade more expensive than a major.
- P&L formula: Pips × Pip Value × Lots = profit or loss in dollars (or Rands).
- Position sizing is the lever that controls how much pip cost eats into your edge.
- The cleanest trade decisions come from thinking in pips first and converting to currency second.