Pips and Points: The Trader’s Ruler

Writer
Jan 20
2 min read

Pips and Points: The Ruler of Forex Traders

In the stock market, you might say a stock went up by a few "dollars" or a certain "percentage." But in the Forex world, where currencies move in tiny decimal increments, we use specific units called Pips and Points to measure distance.

1. What is a Pip (Percentage in Point)?

A Pip is the standard unit used to measure the change in value between two currencies. For most currency pairs, it is represented by the 4th decimal place.

Example: If the EUR/USD moves from 1.1000 to 1.1001, that is a movement of 1 Pip.
The Exception: Currency pairs involving the Japanese Yen (JPY) have fewer decimal places. In these pairs, a Pip is measured at the 2nd decimal place.

2. What is a Point?

A Point (sometimes called a "Pipette" or "Fractional Pip") is the smallest unit of price movement shown on modern trading platforms. It is typically the 5th decimal place.

The Relationship: 1 Pip = 10 Points
Example: If the price moves from 1.10000 to 1.10005, it has moved 5 Points (or 0.5 Pips).

3. Why Distinguish Between Pips and Points?

Today, most brokers show 5-digit pricing for higher precision. However, professional traders usually communicate in Pips because it is the universal standard for calculating performance and profit.

Easy to Remember: If someone says, "I made a 30 Pip profit today," it means the price moved 300 Points in their favor.

The Discipline of Goal Setting: The Discipline Message

Knowing your Pips and Points isn't just about counting how much money you’ve made; it’s about "Limiting Your Risk."

Stop Loss (SL): A disciplined trader defines a clear boundary, such as: "If the market moves 30 Pips against me, I will exit and accept the loss."
Take Profit (TP): Setting a target in Pips helps you avoid making emotional decisions to close a trade too early.

"Gamblers focus on the dollar amount, but disciplined traders focus on the distance (Pips) and the consistency of their system."

Next Lesson: Now that we know how to measure distance, we will explore Lots and Leverage. These are the factors that determine exactly how much money each Pip is worth to your bank account.