Direct answer
In forex trading, a pip (short for percentage in point) is a standard unit of measurement for price movement between two currency rates. It tells you how far a quoted exchange rate has moved, expressed in an agreed step size.
How pips work (definitions and assumptions)
Most forex quotes are written with a decimal structure, for example: 1.2345 or 109.25. A pip is defined as the move in the quote that corresponds to the last decimal place commonly used for that pair. In many major pairs quoted to four decimal places, one pip typically equals a change of 0.0001 in the exchange rate (for example, 1.2345 to 1.2346).
Some brokers and platforms also show pipettes, which are fractional pip steps (for example, an additional digit beyond a pip). That means a displayed price change might be smaller than a pip, while still being tracked by the platform.
Because different currency pairs are quoted with different decimal conventions, the exact decimal amount represented by one pip can differ by pair. Therefore, the safest way to interpret pip movement is to use the pip definition consistent with the pair’s quote format on your data source.
Example or checks (independent verification)
Consider a quote displayed with four decimals (common for many major pairs). If the price moves from 1.2345 to 1.2346, that is one pip of movement. If it moves from 1.2345 to 1.2348, that is three pips.
A useful check is to compare the number of decimal places shown in your platform with the pip rule implied by that display. If your platform tracks movement in smaller increments (such as pipettes), you may see fractional pip counts even when your chart looks like it moves by whole pips.
If you are reading a history table or trade log, verify whether the log reports movement in pips or pipettes, since rounding and display settings can affect how changes are counted.
Relevant limitations and risks
Pips measure price movement size, not trade quality. Knowing how many pips a market moved does not tell you:
- whether the move will reverse or continue,
- the probability of any future outcome,
- or how suitable a move is for a particular strategy.
Also, pip size can be affected by the quote format used for a specific pair and by how a platform reports pip vs pipette increments. Treat pip interpretation as format-dependent and verify it using the pair’s displayed quote convention.
Finally, this explanation assumes you are using standard forex quote conventions and focuses on general mechanics. Exact behavior may vary across data vendors and trading platforms.