Currency Pairs and Pips
Base and quote currencies, majors, minors and exotics, what a pip is, and how to work out what each pip is worth in real money.
Course outline
Imagine asking, "How many cups of chai does one cappuccino cost?" If the answer is 3, you have just quoted a pair: cappuccino against chai, at a price of 3. A currency pair works the same way. It tells you how many units of one currency you need to buy one unit of another. Once that clicks, forex prices stop looking like random decimals.
Base and quote currency
Take this price:
EUR/USD = 1.0850
- The first currency, EUR, is the base currency. It is the "one unit" you are pricing.
- The second, USD, is the quote currency. It is what you pay with.
So 1.0850 means one euro costs 1.0850 US dollars.
When you buy EUR/USD, you are buying euros and selling dollars, betting the euro will strengthen against the dollar. When you sell EUR/USD, you are betting the euro will weaken. If the price rises from 1.0850 to 1.0900, the euro got stronger; if it falls to 1.0800, it got weaker.
Majors, minors and exotics
Pairs are grouped by how often they are traded.
Majors always include the US dollar and are the most traded pairs in the world:
- EUR/USD (euro / US dollar)
- USD/JPY (US dollar / Japanese yen)
- GBP/USD (British pound / US dollar)
- USD/CHF (US dollar / Swiss franc)
- AUD/USD (Australian dollar / US dollar)
- USD/CAD (US dollar / Canadian dollar)
- NZD/USD (New Zealand dollar / US dollar)
Minors, also called crosses, pair two major currencies without the US dollar, such as EUR/GBP, EUR/JPY and GBP/JPY.
Exotics pair a major currency with one from a smaller or emerging economy, such as USD/INR (Indian rupee), USD/ZAR (South African rand) or USD/TRY (Turkish lira).
| Group | Liquidity | Typical spread | Beginner friendly? |
|---|---|---|---|
| Majors | Very high | Tight | Yes |
| Minors | Medium | Wider | With care |
| Exotics | Lower | Much wider, can jump | Not at first |
Most beginners are best served by sticking to one or two majors while they learn.
What is a pip?
A pip is the standard unit for measuring how much a currency pair has moved. For most pairs, one pip is the fourth decimal place, or 0.0001.
- EUR/USD moves from 1.0850 to 1.0851: that is 1 pip.
- EUR/USD moves from 1.0850 to 1.0880: that is 30 pips.
Pairs that include the Japanese yen are the exception. Their pip is the second decimal place, or 0.01.
- USD/JPY moves from 150.00 to 150.25: that is 25 pips.
Many platforms show one extra digit, such as 1.08505. That last tiny digit is a pipette, one tenth of a pip. Do not let it confuse you; just count pips at the fourth decimal (second for yen pairs).
What is a pip worth?
A pip on its own is just a distance. What it is worth in money depends on how big your trade is. Trade size in forex is measured in units of the base currency. For now, you only need three sizes (Reading a Forex Quote covers them properly):
- 1,000 units, called a micro lot
- 10,000 units, called a mini lot
- 100,000 units, called a standard lot
The basic formula:
Pip value = pip size × number of units
The answer comes out in the quote currency.
Worked example 1: EUR/USD
You buy 10,000 units of EUR/USD at 1.0850.
- Pip value = 0.0001 × 10,000 = $1 per pip
The price rises to 1.0880 and you close the trade:
- 30 pips × $1 = +$30
If instead the price had fallen to 1.0830 and you closed there:
- 20 pips × $1 = −$20
Because USD is the quote currency, the answer is already in dollars, and the pip value stays fixed no matter what the exchange rate is.
| Trade size (EUR/USD) | Pip value |
|---|---|
| 1,000 units (micro) | $0.10 |
| 10,000 units (mini) | $1 |
| 100,000 units (standard) | $10 |
Worked example 2: USD/JPY
You buy 10,000 units of USD/JPY at 150.00.
- Pip value = 0.01 × 10,000 = ¥100 per pip
To turn yen into dollars, divide by the current rate:
- ¥100 ÷ 150 = about $0.67 per pip
So a 25-pip move on this trade is worth about 25 × $0.67 = $16.75. Because the quote currency here is yen, the dollar value of each pip changes slightly as the USD/JPY rate moves.
Your trading platform will calculate pip values for you. Understanding the math, though, means you can size your trades sensibly instead of guessing.
Risk note: Pips sound tiny, but they add up fast with bigger trade sizes. A 50-pip move on a standard lot of EUR/USD is $500. Always know your pip value before you click buy or sell.
Key takeaways
- In a pair like EUR/USD, the first currency is the base and the second is the quote; the price is how much quote currency buys one unit of base.
- Majors include the US dollar and are the most liquid; exotics are thinner and more expensive to trade.
- A pip is 0.0001 for most pairs and 0.01 for yen pairs.
- Pip value = pip size × units, expressed in the quote currency.
- On EUR/USD, a micro lot is about $0.10 per pip, a mini lot $1 and a standard lot $10.
Up next: Leverage and Margin, the most important (and most misunderstood) lesson in this course.