If you’re just starting out in Forex, the word you’ll hear most often is pip. What a pip is, how much it’s worth, and how to read a quote are the first things worth understanding, because they let you calculate your risk, the spread, and the size of each trade. I’ll explain it with simple examples.
How to Read a Forex Quote
In Forex you always trade a currency pair. In EUR/USD = 1.1000, the first currency (the euro) is the base currency and the second (the dollar) is the quote currency. The number tells you how many dollars one euro costs.
Each pair has two prices:
- Bid (sell): the price at which you can sell.
- Ask (buy): the price at which you can buy. It is always a bit higher.
The difference between the two is the spread, the cost of entering the market. If you see EUR/USD 1.10000 / 1.10012, the spread is 1.2 pips. I explain it in depth in spread, commission and swap.
What Is a Pip
A pip is the standard minimum unit of price movement. In almost all pairs it is the fourth decimal place: if EUR/USD goes from 1.1000 to 1.1001, it rose 1 pip. If it goes to 1.1050, it rose 50 pips.
There is one important exception: in pairs with the Japanese yen, the pip is the second decimal place. If USD/JPY goes from 150.00 to 150.01, it rose 1 pip.
Most brokers also show an extra decimal, the pipette, which is a tenth of a pip. That’s why you see prices like 1.10012: the last digit is pipettes. When you count pips, don’t get confused by that small number at the end.
How Much a Pip Is Worth in Money
The value of a pip depends on the size of your position (the lot). In pairs where the dollar is the second currency, such as EUR/USD or GBP/USD, the math is easy:
| Size | Units | Value of 1 pip |
|---|---|---|
| 1 standard lot | 100,000 | 10 USD |
| 0.1 lot (mini) | 10,000 | 1 USD |
| 0.01 lot (micro) | 1,000 | 0.10 USD |
If the dollar is not the second currency, the value changes with the price. For example, in USD/JPY with the price at 150, one pip on 1 lot is worth 1,000 yen, about 6.7 dollars. You don’t need to calculate it by hand: the platform or your broker’s pip calculator gives it to you.
Why This Protects You
Many beginners look only at the price and not at the value of the pip. They open 1 lot because “the margin is enough,” the price moves 30 pips against them in a few minutes, and they lose 300 dollars from a 500-dollar account. It wasn’t bad luck: it was not knowing how much each pip was worth.
The rule I use works the other way around: first I decide how much I’m willing to lose (for example, 1% of the account), then I look at how many pips away my stop is, and only then do I calculate the lot. You can find the step-by-step formula in how to calculate the lot size in Forex.
One more detail: in gold, indices and crypto, each broker defines the “point” in its own way. Before trading, check the instrument’s specifications to see how much a minimum move is worth.
Practice on a demo account until counting pips comes naturally. When you move to a live account, choose a broker that shows the specifications of each instrument clearly, such as FxPro, RoboForex or Tickmill.
Where to Trade
These are the brokers and exchanges I use that work with clients from Latin America. Always check that the service is available in your country, and start small.
Risk warning: CFDs, Forex and crypto derivatives carry a high risk of losing money due to leverage. This article is not investment advice.
