Pip, tick size, and pip factor
Table of Contents
1. Summary
A pip is the standard unit of rate change for a currency pair, and it is
pair-specific: most G11 non-JPY pairs quote to 4 decimal places (1 pip =
0.0001), JPY crosses to 2 (1 pip = 0.01). Tick size is the smallest
quoting increment, stated in pips, and can vary by pair, venue, and
instrument. The pip factor converts a pip count into an absolute rate
move (absolute move = pips × pip factor); it must be stored as an
explicit attribute of the pair because using the wrong pip factor inverts
the direction of a forward premium/discount by orders of magnitude.
2. Detail
2.1. Pip conventions
| Pair type | Convention | 1 Pip | Example |
|---|---|---|---|
| Most G11 (non-JPY) | 4 decimal places | 0.0001 | EUR/USD: 1.0850→1.0851 |
| JPY crosses | 2 decimal places | 0.01 | USD/JPY: 149.50→149.51 |
Pip decimal conventions were designed by traders to quote with minimal redundancy and avoid misreads, not chosen arbitrarily.
2.2. Tick size
The tick size is the smallest unit of change in a quotation, stated in units of pip (e.g. ½ pip, 5 pips). It can vary by pair, by trading venue, and by instrument type (spot vs forward vs option) — it is a market/venue attribute layered on top of the pip convention, not a substitute for it.
2.3. Pip factor
- Converts pips into absolute rate values:
absolute move = pips × pip factor. - 4dp pair:
pip factor = 0.0001. 2dp (JPY) pair:pip factor = 0.01. - Used everywhere forward points are quoted; applying the wrong pip factor inverts the direction of the forward premium/discount by orders of magnitude.
- Sanity check: if
Spot ± (forward points × pip factor)produces a negative number, the pip factor is wrong. - Must be stored as an explicit attribute of the currency pair (see Currency pair and currency entity fields), not derived implicitly from decimal_places at use time.
3. See also
- Currency pairs — the hub.
- Currency pair and currency entity fields — where
pip_factor,tick_size,decimal_placeslive on the entity. - Valuation spot date and overnight — the O/N and T/N outright formulas that consume the pip factor.