Pips, points and ticks: measuring a price move

Saying EUR/USD "gained 0.0025" does not mean much. Traders use standard units to measure price moves, compare assets and work out their profits and losses. These units are called the pip, the point and the tick. Once you master them, every risk calculation becomes instant.

The pip in forex

The pip is the standard unit of movement in the currency market. On the vast majority of pairs, it is the fourth decimal place, or 0.0001. On pairs where the Japanese yen is the quote currency, it is the second decimal place, or 0.01, because a single yen has a much lower unit value.

The pipette, a tenth of a pip

Most brokers now display an extra decimal place: EUR/USD shows as 1.08503 rather than 1.0850. That fifth digit, or third on yen pairs, is called the pipette. It is worth one tenth of a pip.

So a displayed spread of 8 pipettes equals 0.8 pip. Be careful not to mix the two up on your platform: some fields, such as stop distance, are expressed in points in MetaTrader, which on five-digit accounts actually means pipettes. A 200-point stop on MT5 is therefore 20 pips on EUR/USD.

Points on indices and gold

On stock indices, we talk about points, not pips. If the DAX goes from 24,000 to 24,120, it has gained 120 points. If the S&P 500 slips from 6,500 to 6,467.5, it has lost 32.5 points.

What a point is worth depends on the contract your broker offers. On an index CFD, the most common value is one unit of currency per point per contract, for example €1 per point on the DAX, but some brokers offer other sizes. Always read the instrument's specification sheet.

On gold, the vocabulary varies from broker to broker. The simplest approach is to think in dollars: a standard lot of gold is usually 100 ounces, so a $1 rise per ounce, for example from 3,300.00 to 3,301.00, moves a one-lot position by $100.

The tick, the smallest price change

A tick is the smallest price change allowed on an instrument. The term is mainly used for futures contracts, where each contract has a tick size and a tick value set by the exchange.

In forex and CFDs, the word tick is also used for each new price update received. A tick chart therefore prints one bar per fixed number of price changes, rather than per unit of time.

Calculating pip value

Pip value tells you how much you make or lose for each pip of movement. It is calculated first in the quote currency, then converted into your account currency if needed.

Why go to all this trouble for a simple unit? Because thinking in pips lets you compare trades with each other, whatever size you use. A 20-pip stop loss is a 20-pip stop whether you trade 0.01 lot or 2 lots. Pip value is what then turns that distance into an amount of money at risk.

Here is a concrete example. You buy EUR/USD at 1.0850 with a stop at 1.0830 and a target at 1.0890. Your risk is 20 pips and your target is 40 pips. With 0.30 lot on a dollar account, each pip is worth $3: you risk $60 to aim for $120. By changing only the size, you adjust the amount at stake without touching your analysis.

You do not need to redo these sums by hand on every trade. The calculator below gives you the pip value for the pair, position size and account currency you choose.