Pip

A pip is the unit your entire risk model is denominated in. Misread it and everything downstream is wrong: stop distance, RR, position size. ### The decimal that counts On most pairs the pip is the fourth decimal. EURUSD moving from 1.0850 to 1.0851 is 1 pip. On JPY pairs it is the second decimal, so USDJPY 149.50 to 149.51 is 1 pip. [OANDA](https://www.oanda.com/uk-en/trading/learn/introduction-to-leverage-trading/what-is-a-pip/) defines a pip as "percentage in point", the smallest standardised move a quote can make, and notes that one pip is equivalent to 1/100 of 1%, or one basis point. ### The fifth decimal is a pipette, not a pip Most brokers now quote one extra digit: five decimals on EURUSD, three on USDJPY. That last digit is a *pipette*, which OANDA puts at one tenth of a pip. EURUSD quoted at 1.08505 is sitting half a pip above 1.0850, not five pips above it. The error this invites is expensive. Read a move from 1.08505 to 1.08515 as "ten pips" when it is one, and a position sized on that misread is ten times too large, while a stop set on it is ten times too tight. When the system tells you the stop must cover protected structure by 2 pips, that means 0.00020 on EURUSD and 0.020 on USDJPY. Count the digits before you trust the number. ### Pip value is not a constant A pip is not "ten dollars". Its cash value depends on the pair, your size, and your account currency. [EarnForex's pip value formula](https://www.earnforex.com/guides/pip-value-formula/) splits it into cases. - When the **quote currency is your account currency**, pip value is just units times pip size. One standard lot of EURUSD in a USD account: 100,000 x 0.0001 = $10. - When your account currency is the **base** currency, you divide by the rate instead. USDJPY in a USD account is this case: (100,000 x 0.01) divided by the USDJPY rate. At 149.50 that is roughly $6.69 a pip on a standard lot, not $10. - **Cross pairs** need a conversion through a third rate, so their pip value drifts as that rate moves. The practical consequence: the same lot size with the same stop in pips can carry meaningfully different dollar risk on two different pairs. Compute pip value for the pair you are actually about to trade, then size. Not the other way round.