A pip, which stands for "percentage in point," is the smallest standard unit of price movement in a currency pair. For most currency pairs, a pip is 0.0001, or one hundredth of a percent. For Japanese yen pairs, a pip is 0.01 because the yen is valued much lower relative to other major currencies.

The value of a pip depends on three factors: the currency pair being traded, the size of the trade (lot size), and the exchange rate. For pairs where USD is the quote currency (such as EUR/USD), the pip value for one standard lot is always $10. For pairs where USD is the base currency (such as USD/JPY), the pip value varies with the exchange rate and is calculated as: Pip Value = (Pip Size / Exchange Rate) x Lot Size in Units.

For example, trading one standard lot (100,000 units) of EUR/USD, each pip is worth $10. If you trade a mini lot (10,000 units), each pip is worth $1. Understanding pip values is essential for risk management, as it allows you to calculate the exact dollar amount at risk for any given stop loss distance.