Pip
The standard unit of price movement in forex — typically 0.0001 of a currency pair's price, or 0.01 for JPY pairs.
Definition
A pip (short for 'percentage in point' or 'price interest point') is the smallest conventional unit of price movement in forex. For most currency pairs, one pip equals 0.0001 of the quoted price — so EUR/USD moving from 1.0850 to 1.0851 is a 1-pip move. For pairs quoted against the Japanese yen, one pip equals 0.01 — so USD/JPY moving from 110.00 to 110.01 is a 1-pip move. Some brokers also quote in 'pipettes' (one-tenth of a pip) as the last decimal in a 5-decimal price. The dollar value of a pip depends on position size: on a 1-lot position (100,000 units), one pip equals roughly $10 for USD-quoted pairs.
Example
Why It Matters
Pip-based thinking matters for prop traders because stop-loss distances are the clearest way to translate a risk-percentage rule into actual position sizes. A trader with a $100K account and a 1% risk rule who wants a 20-pip stop must size at 5 lots (5 lots × 20 pips × $10 = $1,000 risk). Drawdown calculations are also cleanest in pips: a 5% daily drawdown on a $100K account is $5,000 = 500 pips on a 1-lot position, or 250 pips on a 2-lot position. Confusion between pips and pipettes (or between pip value on USD pairs vs. cross pairs) is a common sizing error that leads to accidental over-risk.