Direct answer
A pip definition is the rule for what counts as one “pip,” meaning one standard unit of quoted price movement in forex. Related concepts—points and pipettes—are usually different scales (and sometimes different rounding/display choices) used to describe finer or coarser price changes. The key difference is that pip definition focuses on the mapping between a price change and a standardized unit, while points/pipettes focus on how platforms break that standardized movement into smaller displayed steps.
Mechanism or definition
Pip definition (the canonical mapping unit)
A pip is commonly treated as the smallest “conventional” increment that matters for quoting and comparison across trades. In practice, pip size depends on the decimal formatting of the quoted currency pair:
- For many currency pairs quoted with four decimals (for example, 1.2345), a pip is typically associated with a change in the fourth decimal place.
- For pairs quoted with five decimals (for example, 1.23456), the pip can still correspond to a change in the fourth decimal place, while the extra digit often represents a fraction of a pip used for more precise quoting.
This “which decimal place becomes one pip” is the essence of pip definition: it is a conversion rule from “price change” to “pip count.”
Points (a different unit used for display or internal increments)
Points are an increment used by trading systems to describe price movement. In many contexts, “points” refer to raw changes in the quoted number, usually tied to one unit of the smallest displayed decimal place. That means points are often closely related to the quote’s decimal structure, but “point” is not always defined as a standardized cross-platform unit the way pip is intended to be.
So a pip definition differs from “points” because:
- Pip definition ties to a conventional standard unit for forex comparison.
- Points describe increments that are often directly aligned to display resolution (one decimal step of the platform’s quote format).
Pipettes (fractional pips)
A pipette is typically described as a fraction of a pip, often one tenth of a pip in common platform conventions. This exists because many platforms quote with extra decimal precision and want users to see changes in finer increments.
The relationship is usually:
- 1 pip = 10 pipettes (when the platform uses “pipette” to mean one tenth). But the exact fraction can vary by how a provider chooses its labeling and by the pair’s quote format.
Evidence or example (bounded assumptions)
To keep this self-contained, consider a hypothetical currency pair quoted to five decimals, where the platform displays prices like 1.23456.
Assume:
- The pip definition used by that market is “one pip equals a change of 0.00010 in price” (i.e., the pip corresponds to the fourth decimal place change).
- The smallest quoted change on screen is 0.00001.
Now compare concepts for a single price move:
- Suppose the price moves from 1.23456 to 1.23466.
- The raw price change is 0.00010.
Under the assumptions:
- Pip count: 0.00010 corresponds to 1 pip.
- Points: if “points” mean one smallest displayed decimal step (0.00001), then 0.00010 equals 10 points.
- Pipettes: if the platform labels 0.00001 as one tenth of a pip, then 0.00010 equals 10 pipettes.
Notice what this demonstrates:
- Pip definition determines the pip count for the same price move.
- Points translate the same move into the quote’s smallest displayed increment.
- Pipettes express a fractional pip step, aligning with the provider’s precision and terminology.
Material limitation: terminology is not always identical
Even with the same decimal precision, the terms “points” and “pipettes” can be implemented differently across platforms. Pip definition is also not guaranteed to be uniform everywhere because providers may adopt different conventions for decimal mapping and labeling. Therefore, numerical examples depend on stated assumptions about quote format and conversion rules.
Limitations and risks
1) Provider-specific quoting and rounding
A major failure mode is assuming that “pip = fourth decimal” always holds, or that “pipette = one tenth pip” always matches a specific platform. Providers can:
- Quote with different decimal formats per pair.
- Apply rounding rules when converting between price changes and pip-based displays.
- Label internal increments with different terms.
This can cause a mismatch between what users think is “1 pip” and what the platform actually computes.
2) Calculation examples ignore trading costs and execution details
Even if you correctly convert a price move into pip counts, realized results depend on factors outside pip definition, such as:
- Transaction costs (often displayed separately from price movement).
- Execution quality (slippage) and timing.
So pip-based reasoning should be viewed as a price-change measurement, not a prediction of outcomes.
3) Cross-pair interpretation can break without pair-specific pip rules
Some currency pairs and quoting conventions can use different decimal structures, meaning pip size can differ. A pip definition must therefore be applied relative to the specific pair’s quote format, not assumed from another pair.
Verification or next question
To independently verify pip definition and its relation to points/pipettes, check the following, without relying on marketing material:
- Your platform’s instrument details for the pair’s quote format (number of decimals).
- The platform’s stated pip size or conversion rule (how it computes pip value from price changes).
- The platform’s display of pip/point/pipette changes for a controlled change in the chart (a small manual move) and confirm the conversion.
If you want, tell me the quote format you’re seeing (e.g., four decimals or five decimals) and the exact way your platform labels pip/point/pipette, and I can help you map those terms consistently under clearly stated assumptions.