A pip (percentage in point) is the smallest price movement in a currency pair. For most pairs, a pip equals 0.0001 of the quoted price, while for JPY pairs, a pip equals 0.01.

Knowing your pip value is essential for proper risk management. The pip value determines how much money you gain or lose per pip of price movement. This varies based on the currency pair, lot size, and account currency.

The formula for calculating pip value is: Pip Value = (Pip Size / Exchange Rate) × Lot Size × Contract Size. For example, trading 1 standard lot of EUR/USD at 1.0847 gives a pip value of approximately $9.22.

Professional traders always calculate pip values before entering a trade. This ensures they know the exact monetary risk of their position relative to their stop loss distance.

Different lot sizes significantly affect pip values. A standard lot (100,000 units) has a pip value roughly 10x that of a mini lot (10,000 units) and 100x that of a micro lot (1,000 units).