Definition
A pip is the conventional unit for measuring a forex price move. It is usually the fourth decimal place (0.0001) of a quote, but the second decimal place (0.01) for pairs quoted in Japanese yen.
How it works
Pip size depends on how a pair is quoted. EUR/USD moving from 1.2500 to 1.2510 is a 10-pip move, and USD/JPY moving from 150.25 to 150.35 is also 10 pips because the yen pip is 0.01. Many brokers show one extra decimal (the fifth, or the third for yen), a tenth of a pip.
A pip's cash value equals pip size times position size and is stated in the quote currency. For 100,000 units of EUR/USD one pip is 10 US dollars. When the quote currency differs from your account currency, the value must be converted.
Formula / convention
Pip value (in quote currency) = pip size × position size in base-currency units; pip size = 0.0001 for most pairs and 0.01 for pairs quoted in yen
Illustrative example
Illustrative: USD/JPY trades at 150.00 and the position is 100,000 US dollars. One pip is 0.01 × 100,000 = 1,000 yen, or about 1,000 ÷ 150.00 = 6.67 US dollars. A 25-pip move is 25 × 1,000 = 25,000 yen, or about 166.67 US dollars.
What to watch for
Pip conventions and fractional-pip quoting differ between pairs and providers, so confirm the pip size and value in your platform before sizing a position. A pip is only a unit of measurement and says nothing about how large or likely a move will be.