Pips, Points & Tick Size

Understanding pips, points, pipettes, and tick size is essential for every trader because these terms describe how much an instrument’s price has moved. They are especially important when calculating stop-losses, take-profits, position size, spreads, risk-reward ratios, and profit or loss.

Although these terms are sometimes used interchangeably, they do not always mean the same thing. Their exact meaning depends on the asset, broker, exchange, and price quotation.

1. What Is a Pip?

A pip (percentage in point) is a standard unit used to measure price movement in the Forex market.

For most major and minor currency pairs:

1 pip = 0.0001

For example, if EUR/USD moves from:

1.1000 → 1.1001

the price has moved 1 pip.

JPY Currency Pairs

For most Japanese yen pairs, one pip is typically the second decimal place:

1 pip = 0.01

Example:

USD/JPY: 150.00 → 150.01

This represents a movement of 1 pip.

Important: Always check the broker’s quotation and instrument specification because the number of decimal places displayed can vary.

2. What Is a Pipette?

A pipette is one-tenth of a standard pip. It is also commonly referred to as a fractional pip.

For EUR/USD:

• 1 pip = 0.00010
• 1 pipette = 0.00001
• 10 pipettes = 1 pip

For example:

EUR/USD: 1.10000 → 1.10005

The price has moved:

0.00005 = 0.5 pip = 5 pipettes

Many modern Forex brokers quote currency pairs using 5 decimal places, allowing traders to see fractional-pip movements.

3. What Is a Point?

The term point is broader and can mean different things depending on the market, broker, or trading platform.

In some platforms, a point refers to the smallest displayed price increment. In other contexts, traders may use “point” to describe a larger price movement.

For example, if gold is quoted as:

XAU/USD: 2,500.00 → 2,500.01

the price has moved 0.01. A broker or platform may refer to this as 1 point, depending on its pricing convention.

Therefore:

A point is not universally equal to a pip.

This distinction becomes particularly important when trading gold, indices, stocks, futures, and cryptocurrencies, where pricing conventions differ significantly between instruments and providers.

4. What Is Tick Size?

Tick size is the minimum price increment by which an instrument can move under its market or trading specification.

In simple terms:

Tick size tells you the smallest permitted price change for an instrument.

Examples may include:

The actual tick size can vary according to the exchange, broker, contract specification, liquidity provider, and trading platform.

For exchange-traded futures, for example, tick size is normally defined by the individual contract specification.

5. Pip vs Point vs Tick Size

A useful way to remember the difference is:

Pip → A conventional Forex price-movement unit

Pipette → One-tenth of a pip

Point → A general or platform-specific price unit

Tick Size → The minimum permitted price increment

These concepts overlap in some markets, but they should not automatically be treated as identical.

6. Practical Forex Example

Suppose EUR/USD moves from:

1.10000 → 1.10100

The price difference is:

0.00100

Since one pip in EUR/USD is normally 0.00010:

0.00100 ÷ 0.00010 = 10 pips

Therefore, the market has moved 10 pips.

Now consider a smaller movement:

1.10000 → 1.10001

The difference is:

0.00001 = 1 pipette = 0.1 pip

This is why traders need to understand the instrument’s decimal precision before calculating price movements.

7. Why Pips, Points and Tick Size Matter

Understanding price increments is fundamental to proper trade management.

Stop-Loss Calculation

A trader may define a stop-loss distance in pips, points, or ticks depending on the instrument.

For example:

EUR/USD entry: 1.1000

Stop-loss: 1.0970

Difference:

30 pips

Take-Profit Calculation

If the target is:

1.1060

from an entry of:

1.1000

the target distance is:

60 pips

Risk-Reward Ratio

Price distance is also required to calculate the potential risk and reward of a trade.

For example:

• Stop-loss distance = 30 pips
• Take-profit distance = 60 pips

Risk-reward ratio:

1:2

Position Sizing

Pip or tick value is critical when determining how much capital is at risk.

Position sizing depends on factors such as:

• Account balance
• Risk percentage
• Stop-loss distance
• Pip/tick value
• Contract size
• Instrument specification

Spread Calculation

In Forex, the spread is commonly expressed in pips.

For example:

EUR/USD Bid: 1.10000

EUR/USD Ask: 1.10010

Spread:

1 pip

However, the actual spread can vary with market conditions and broker pricing.

8. Common Mistakes Traders Make

Mistake 1: Assuming Every Market Uses Pips

Pips are primarily associated with Forex. Stocks, futures, indices, commodities, and cryptocurrencies often use different conventions.

Mistake 2: Confusing a Pip With a Pipette

A pipette is one-tenth of a pip.

For EUR/USD:

1 pip = 10 pipettes

Mistake 3: Assuming a Point Always Has the Same Value

A “point” can have different meanings depending on the platform and instrument.

Mistake 4: Ignoring Instrument Specifications

Two brokers can display the same instrument using different decimal precision.

Before calculating a trade, verify:

• Minimum price increment
• Decimal precision
• Contract size
• Tick value
• Pip value
• Lot size

Mistake 5: Using the Same Calculation Across All Markets

A pip calculation that works for EUR/USD cannot automatically be applied to gold, US indices, stocks, or Bitcoin.

Each instrument should be evaluated according to its own specifications.

9. Pips, Points & Tick Size: Quick Reference

Tick size and tick value are different concepts.

• Tick size = how far price can move by one minimum increment
• Tick value = how much money that movement represents for a specific position or contract

10. Key Takeaway

Pips, points, pipettes, and ticks are all related to measuring price movement, but their definitions depend on the market and instrument.

The most important rule is:

Never assume the price increment or monetary value of a pip, point, or tick. Always check the instrument’s specification before calculating risk, position size, profit, or loss.

A strong trader understands not only how many pips or points a market has moved, but also what that movement means in monetary terms.

Remember

Pip = Forex measurement convention

Pipette = 1/10 of a pip

Point = General/platform-specific price unit

Tick Size = Minimum price increment

Tick Value = Monetary value of one tick

Mastering these basic market-mechanics concepts provides the foundation for accurate risk management, position sizing, trade execution, and professional trading analysis.