A pip measures an FX quote change using a stated price unit. Convert pips into quote-currency value and distinguish them from display precision and investment returns.
Pip
A pip is a conventional unit used to measure changes in a foreign-exchange quote. It lets a trader describe a price move or a bid-ask spread compactly. A pip count becomes a money amount only after you specify the pip size, the currency pair and the position size.
A pip is not universally the last digit on the screen. Providers may display fractional pips, and the pip convention can differ between instruments. OANDA's instrument specification, for example, separates the pip's decimal location from the number of decimal places displayed. Check the actual instrument metadata rather than inferring pip size from the formatted price. OANDA API definitions.
Five pips, then dollars
Consider a synthetic EUR/USD quote, expressed dimensionally as USD per EUR. For this example, stipulate one pip as 0.0001 USD per EUR. A rise from 1.2000 to 1.2005 is
ΔS=1.2005−1.2000=0.0005USD per EUR,pip change=0.00010.0005=+5.
Holding the euro amount fixed at EUR 100,000, its USD value rises from USD 120,000 to USD 120,050. Each pip is worth USD 10 for that amount, so the five-pip move produces a USD 50 price-value increase:
100,000EUR×0.0001EURUSD=10USD per pip,100,000EUR×0.0005EURUSD=50USD.
Synthetic EUR/USD rises from 1.2000 to 1.2005 USD per EUR, five steps of 0.0001. On EUR 100,000, each pip changes USD value by 10, and five pips change it by 50 before costs.
Original synthetic quote ladder. One pip is stipulated as 0.0001 USD per EUR; the EUR amount stays fixed. The USD 50 is a price-value change before costs, not a return on margin.
Reversing the position reverses the price exposure: a short EUR position of the same size has a USD 50 price loss on this rise. Neither result includes spread, commissions, financing or conversion into a different account currency. The quote change alone also does not specify executable entry and exit prices.
The FX primer works through which currency is being bought and why buying uses the ask while selling uses the bid. Its full lesson requires a free signed-in account.
The digit, the unit and the denominator
With the same stipulated pip size, a display changing from 1.20000 to 1.20001 moves 0.1 pip, not one pip. The extra digit represents a fractional pip. OANDA calls these fractional units pipettes; terminology and formatting should be checked for the provider in use. OANDA's explanation.
For a signed base-currency quantity N, quote change ΔS in quote currency per base currency, and pip size p in the same units:
pip change=pΔS,ΔVquote=NΔS.
The first expression measures a price movement; the second measures its value effect in the quote currency. A positive pip change can help a long base-currency position and hurt a short one. If the account currency differs from the quote currency, another exchange-rate conversion is needed to express the value effect in that account.
Finally, pips are absolute quote increments, not percentage returns. A basis point measures a change in a percentage rate; an FX pip uses a price-unit convention. Computing an investment return requires a capital denominator. Margin or leverage does not change how many pips the quote moved, although it changes the relationship between a position's value change and the capital supporting it.
John C. Hull, Options, Futures, and Other Derivatives, Ninth Edition, Global Edition (Pearson Education Limited, 2018), §2.11, pp. 65–66: differing FX quotation conventions.
