To manage risk you must measure movement precisely. In forex that unit is the pip — and confusing pips with points is a common, expensive beginner mistake.
What a pip is
A pip is normally the fourth decimal place of a pair (0.0001). For EUR/USD moving from 1.0850 to 1.0851 is one pip. For JPY pairs, the pip is the second decimal place (0.01), because of how the yen is quoted.
Pipettes, points and ticks
Many brokers quote a fifth decimal — a pipette or fractional pip (one tenth of a pip). A tick is simply the smallest price change the platform records. Always confirm whether your platform is counting pips or pipettes before you size a trade.
Why this is a risk-management tool
Your stop-loss distance is measured in pips, and your position size translates pips into money. Get the pip definition wrong and your risk is off by a factor of ten. This is why the very next lessons cover lots and position sizing.
Key takeaways
- A pip is the 4th decimal (0.0001) for most pairs, 2nd decimal for JPY pairs.
- A pipette is one tenth of a pip; confirm which your platform shows.
- Pips are how you measure stop distance and convert risk into money.