# Why pips are more important than $s

A pip (point in percentage), is the smallest movement a forex price can make, and is just as important to know, and manage, than the Dollars the trader can make. A pip is a standardized unit, so we know we are talking about the same change in a price when we talk in pips.

A pip is usually quoted as one basis point, that is 1/100th of 1% (1% = 100 basis points). A basis point is 0.01% (1/100th of a percent) or 0.0001 in decimal format. Fx is quoted in decimal format for all currencies. So, a one point change in the 4th decimal (second decimal for JPY), is a one pip change.

Currencies are qouted to the 4th decimal, or more for fractional pips (pipettes), but JPY is qouted to the 2nd decimal (a 3rd decimal would be a fractional pip). Fifty pips = 500 pipettes.

### Definitions

**You will need to understand three definitions to handle the role of pips effectively in your trading:**

- Pip: the smallest price movement a currency pair can make;
- Exchange rate: the price relation between two currencies at a given moment See "Forex Trading Terms" for base and quote currency definitions and an explanation of pips;
- Notional amount: the total value to which the trader is exposed based on the leverage used.

## How to calculate pip value

The formula for calculating the value of a pip is:

- divide 1 pip in decimal form (0.0001) by the current exchange rate
- multiply by the value of your trade (the notional amount).

In the image, that will be:

1 / 0.85070 x 100 000 = 11,75 EUR

In the case of the EURUSD trade the value of a pip will be 9,39 EUR

Your exposure in the EURGBP trade will be 11,75 EUR for every pip the position move in your favour or against you.

**That is why it is safer to start your trading with micro lots, which, in this example, will reduce your
exposure to 0.1175 EUR per pip price movement.**

A lot is the standard unit in which a currency can be traded. There are 4 sizes of lots:

- Standard lot = 100 000 units;
- Mini = 10 000 units;
- Micro = 1000 units;
- Nano = 100 units.

**Example:**

A micro lot trade (0.01) of GBPUSD, will result in a profit or loss of $1 per 10 pips. Not fireworks, but affordable practice.

**If you don't mind the pips, you will lose the money.**

**Learn more about Risk**