Introduction
As a beginner if you are entering into forex and commodities trading, then it is essential for you to know how to calculate pips. A pip represents the tiniest change in the price, short for “percentage in poin
t.” Whether trading currency pairs like EUR/USD or commodities like gold, mastering pip calculations helps traders accurately measure profits, losses, and risks. This comprehensive tutorial will equip you with the knowledge of the pip size formula, manual pip calculation, and pip profit calculation techniques. You will learn why understanding what a pip in forex is crucial for effective trading strategies and how to calculate pips manually to gain more control over your trades.
Getting to Grips With Pips and Pip Size
Pips and pip size are fundamental concepts in forex trading that represent the smallest price movement a currency pair can make.
What is a pip?
- A pip stands for “point in percentage,” which refers to the standard unit used to measure the change in price of the currency pairs in a forex.
- In forex most of the currency pairs have pip movement of the fourth decimal place, 0.0001.
- Except for currency pairs involving the Japanese yen (JPY), it has a pip movement of the second decimal place, equal to 0.01.
Understanding Pip Size
- Pip size is the actual numerical size of one pip movement, typically 0.0001 or 0.01 depending on the pair.
- Some brokers also use pipettes, which are one-tenth of pip (0.00001) in most pairs.
- Pip value changes based on the currency pair, the trade size (lot size), and the current exchange rate.
How Pip Value is Calculated
- The formula for pip value is
Pip Value = (Pip Size / Exchange Rate) × Position Size
- For currency pairs having the USD involved (e.g., EUR/USD), the pip value often remains constant (e.g., $10 per standard lot).
- For cross-currency pairs and accounts not denominated in USD, pip value fluctuates and must be converted to the account currency.
Ready to Count Your Pips? Here’s How to Calculate Your Profit
- The basic formula to calculate pip profit is
Profit or Loss = Number of Pips × Pip Value
- Pip value is calculated as
Pip Value = Lot Size × Contract Size × Pip Size
- For almost every currency pair the pip size is 0.0001, except for JPY, which is 0.01 and varies in the case of commodities.
- For example, if you buy 1 standard lot (100,000 units) of EUR/USD and the price moves 50 pips in your favor, with a pip value of $10, your profit would be:
50 pips × 10 USD = 500 USD
Factors Affecting Pip Profit Calculation
- Trade Size (Lot Size): The size of your profit or losses depends on the size of your lot.
- Currency Pair and Account Currency: Pip value is quoted in the quote currency of the pair and may need conversion to your account currency.
- Leverage: While leverage affects margin requirements, pip profit is calculated on the full position size.
- Price Movement: The difference between entry and exit price expressed in pips determines profit or loss.
Practical Example
For example, you buy a trade, and the entry price is 1.3000 with a position size of 0.1 lot (10,000 units). And then the price moves to 1.3050 from 1.3000. If 1 pip equals $1 for this position size, then profit is:
50 × 1 = 50 USD
Forex vs. Commodities: What’s the Difference in Pips?
As you know that both forex and commodities trading revolve around pip calculation, you can’t take an entry without calculating it. And for that you need to understand the difference of pip for both.
Forex Specifics
- A pip in forex is generally the smallest price move in a currency pair, commonly 0.0001 for most pairs (known as one basis point), except for yen pairs, where it is 0.01 due to the different decimal place pricing.
- Currency pairs are quoted as base/quote currency, so pip value calculations depend on the pair and your account currency. For example, if trading EUR/USD, the pip value is calculated differently than USD/JPY because of the quoted currency’s decimal placement and value relative to your account currency.
- Cross pairs (pairs not involving USD) require conversion of pip values back to the trader’s account currency for true profit/loss calculation.
- For more precise pricing and smaller pip movements, we use pipettes, which are one-tenth of a pip.
Commodities Specifics
- Commodities like gold (XAU/USD) and silver have pip values defined differently; often a pip is $0.01 for gold, but the lot size and trading unit size vary (e.g., one lot of gold is typically 100 ounces).
- Because commodities are only priced in USD per ounce or barrel, it is little different from forex trading to calculate pip values for commodities, and it directly affects how much you gain or lose with each price move.
- Each commodity has its own standard lot sizes, which are used to determine the pip size and value.
Key Differences
| Aspect | Forex | Commodities |
| Pip definition | Generally 0.0001, 0.01 for JPY | Typically $0.01 or smallest tick |
| Lot size | Standard lot = 100,000 units | Varies, e.g., gold = 100 ounces |
| Price quote | Base/quote currency pair | Dollar price per unit (ounce, barrel) |
| Pip value impact | Depends on pair & account currency | Depends on contract size & price quoting |
These are some basic differences between forex and commodities trading as they help in correct application of formulas for pip calculation, ensuring accurate profit, loss, and risk management as per the type of assets.
Popular Pip Calculation Tools
- ForexTime Pip Calculator: In this calculator you just need to enter required info like currency pair, lot size, and account currency and it will instantly give you the pip value helping in risk management.
- Myfxbook Pip Calculator: You can use this calculator to get pip value as per different lot sizes like for standard, mini, and micro lots based on the current market rates.
- Exness Trading Calculator: A package full of various types of calculators like for pip value, margin, spread, commission, and more for forex and commodities.
- Dukascopy Pip Value Calculator: It helps you convert the price changes from pips to your trading account currency for the specific position size, and manage risk effectively .
- BabyPips Pip Value Calculator: In this you get the pip value already converted into your base currency helpful in reducing the risk and position sizing.
FAQs about Pips in Forex Trading
1. What is a pip in forex trading?
A pip (percentage in point) is the smallest price movement that a currency pair can make under normal market conditions, often representing the fourth decimal place in most pairs.
2. How is a pip value calculated?
The pip value depends on the currency pair, lot size, and account currency, with formulas available for manual calculation. For pairs including USD, one pip is worth $10 for a standard lot, but this may vary for different lot sizes.
3. How can I calculate the profit or loss pip?
It’s very easy to calculate pip profit; you just need to multiply the pip value with the price moved either in your favor or against you, considering lot size. By this you determine the real monetary gain or loss from a trade.
4. How many pips are typical for different trading styles?
Scalpers is a short and quick trade targeting around 5-10 pips only, while in swing trading the target increases to 50-100 pips or even more.
5. What is a pipette or fractional pip?
A pipette is one-tenth of a pip, providing more precise pricing, especially useful for tight spreads and small movements.
Conclusion
To sum up, it is crucial to know how to calculate pips for forex and commodity traders to achieve long-term success in trading. It reduces your work by half by calculating pip, which helps you predict profits or losses involved, manage your risk, and make trading strategies. That’s why it’s important for a smooth trading experience.
That’s why a trusted tool for all these calculations will assist you in disciplined trading. And with InsightfulTrade’s assistance it will be easier for you to implement these tools in your daily practice. They make the complex concepts easy to understand with their well-researched and analyzed resources building your confidence and effective decision-making and risk control capacity.
Author: Kumkum Chandak
Experience: 3+ Years in Trading Research & Market Content Strategy
Kumkum Chandak is a trading content strategist and market research writer who specializes in simplifying technical analysis, trading tools, and strategy-driven educational content. Her work is optimized for EEAT, accuracy, and user intent, ensuring every article delivers practical insights for traders of all levels.
Risk Disclaimer:
All content is strictly educational and not financial advice. Trading involves substantial risk. Always perform your own analysis or consult a professional advisor.
Last Updated: 17 November 2025
