- What is a PIP in Forex?
- Why Are PIPs Important in Forex Trading?
- What Is a Spread in Forex?
- How Do PIPs Work with the Japanese Yen (JPY)?
- What Is Forex Pair Volatility?
- What Are The Types of Forex Currency Pairs?
- How to Calculate the Value of a PIP in Forex?
- How to Use Our Forex PIP Calculator?
- How Do PIPs Impact Your Trading Risk?
The foreign exchange market (Forex) is the largest financial market in the world, with trillions of dollars traded daily. In South Africa, forex trading is gaining popularity as more traders look to capitalise on currency movements.
For South African traders, understanding PIPs (Percentage in Point) is crucial. PIPs measure price changes in currency pairs and help determine potential profits and losses in trading.
To make trading easier, we offer a free PIP Calculator—a tool that quickly determines PIP values so you can manage risk, optimise trades, and make smarter trading decisions.
What is a PIP in Forex?
A PIP (Percentage in Point) is the smallest price movement a currency pair can make on most forex trading platforms.
For most currency pairs, a PIP is equal to the fourth decimal place of an exchange rate.
For example
If the USD/ZAR exchange rate moves from 18.6525 to 18.6540, that’s a 15 PIP change.
Since forex markets move quickly, PIPs provide a standardised way to measure price changes efficiently.
Why Are PIPs Important in Forex Trading?
PIPs play a key role in:
- Calculating profits and losses – PIPs help traders measure how much they gain or lose per trade.
- Managing risk – Traders set stop-loss and take-profit levels using PIPs.
- Understanding spreads – Brokers charge fees through spreads, which are measured in PIPs.
What Is a Spread in Forex?
A spread is the difference between the buy price (bid) and sell price (ask) of a currency pair. This is how brokers make money, instead of charging direct commissions.
If the USD/ZAR buy price is 18.6500 and the sell price is 18.6480, the spread is 0.0002 (or 2 PIPs).
A lower spread means lower trading costs.
How Do PIPs Work with the Japanese Yen (JPY)?
For most currency pairs, a PIP is the fourth decimal place (e.g., 0.0001). However, Japanese Yen (JPY) pairs are different because they are priced differently.
For JPY pairs, a PIP is measured at the second decimal place (e.g., 0.01 instead of 0.0001).
If USD/JPY moves from 150.60 to 150.85, that’s a 25 PIP movement.
What Is Forex Pair Volatility?
Volatility refers to how much a currency pair moves in PIPs over a certain period, such as a day.
More volatile pairs experience bigger price swings, creating both profit opportunities and risks.
Formula for Volatility:
Volatility = Highest price − Lowest price
For example
If USD/ZAR reaches a high of 18.7500 and a low of 18.7100, the daily volatility is:
18.7500 - 18.7100 = 40 PIPs
What Are The Types of Forex Currency Pairs?
Forex currency pairs are divided into Major Pairs, Minor Pairs, and Exotic Pairs. Understanding these categories is crucial for traders, as different pairs have different levels of liquidity, volatility, and trading costs.
Major Pairs
Major pairs are the most traded currency pairs in the world and always include the US dollar (USD). These pairs have high liquidity, tighter spreads, and lower trading costs.
Examples of Major Pairs:
- USD/ZAR – Represents the exchange rate between the South African rand and the US dollar. It is influenced by South African Reserve Bank (SARB) interest rates, global commodity prices, and political stability.
- EUR/USD – The most traded currency pair globally, reflecting the relationship between the Eurozone and the US economy.
- USD/JPY – One of the most liquid forex pairs, affected by Japan’s monetary policy and global risk sentiment.
Good to know
Major pairs generally have lower volatility and tighter spreads, making them cheaper to trade.
Minor Pairs (Cross Currency Pairs)
Minor pairs, also known as cross currency pairs, do not include the US dollar (USD). They involve other major currencies, such as the Euro (EUR), British Pound (GBP), and Japanese Yen (JPY).
Examples of Minor Pairs:
- EUR/GBP – The exchange rate between the Euro and the British pound.
- GBP/ZAR – The exchange rate between the British pound and the South African rand.
- EUR/JPY – The exchange rate between the Euro and the Japanese yen.
Minor pairs tend to have higher volatility and wider spreads than major pairs.
Exotic Pairs
Exotic pairs include one major currency and one currency from an emerging or smaller economy. These pairs have lower liquidity and higher trading costs due to wider bid-ask spreads.
Examples of Exotic Pairs:
- USD/ZAR – US dollar vs. South African rand.
- EUR/TRY – Euro vs. Turkish lira.
- GBP/SGD – British pound vs. Singapore dollar.
Exotic pairs experience larger PIP movements and are riskier for traders due to high volatility.
How to Calculate the Value of a PIP in Forex?
The value of a PIP depends on the currency pair and trade size.
Formula:
PIP Value = (PIP Change × Lot Size) ÷ Exchange Rate
For example
If USD/ZAR moves from 18.6220 to 18.6221 (1 PIP change):
- Lot size = 100,000 units
- Exchange rate = 18.6221
- PIP Value = (0.0001 × 100,000) ÷ 18.6221 = R5.37
Most forex trading platforms automatically calculate PIP values, but understanding them helps with risk management.
How to Use Our Forex PIP Calculator?
Calculating PIPs manually can be time-consuming. That’s why we offer a free PIP Calculator to help traders instantly determine their profit or loss on any trade.
How It Works:
- Enter the number of PIPs moved
- Select the currency pair (e.g., USD/ZAR)
- Enter the trade size (lot size)
- Choose your deposit currency
Click "Calculate" to see the exact PIP value for your trade.
How Do PIPs Impact Your Trading Risk?
While PIPs measure market movements, trading with high leverage can magnify both profits and losses.
Key Risk Factors:
- Leverage Increases Risk – Higher leverage means larger position sizes, increasing profit/loss per PIP movement.
- Market Volatility – Sudden price swings can cause rapid PIP movements and unexpected losses.
- Holding Overnight – Keeping positions open overnight may result in swap fees, affecting overall profitability.
PIPs aren’t just technical measurements—they are essential for making informed trading decisions. By understanding how PIPs work, traders can:
- Minimise risk
- Maximise profits
- Develop a long-term forex strategy
To simplify your trading, use our free PIP Calculator to quickly determine PIP values, manage risk, and optimise your trades with confidence.
