Pip is the smallest fraction that a currency pair can move. It is also called 1 basis point. In US stock markets usually the price is moving by 1 cent of a dollar which is 1/100 (one hundredth) whereas a pip in forex market is 1/10,000 (one in ten thousand). If for example, the EUR/USD is at 1.2457 then a one pip advance will make it 1.2458 and a hundred pips decline will make it 1.2357. What will happen if lets say the exchange rate of EUR/USD goes to 1.9999? Then an advance of 101 pips will make it 2.0100 or if it goes to 1.0000 a decline of 100 pips will make it 0.9900.

Many forex platforms use pips as the smallest fraction that currencies pairs can move but the need for more accuracy has produced fractions of one pip which are called pipettes. A pipette equals 1/10 (one tenth) of a pip and it represents a fraction of 1/100,000 (one in hudrend thousand). So if EUR/USD is at 1.25548 and a 2 pipettes advance take place then the pair will be at 1.25550. So the fifth decimal digit in a platform denotes pipettes.

The value of a pip/pipette in dollars or euros will be different depending on the size of the position (lot) that a trader/investor has opened. In EUR/USD pair if someone buys a lot of $100,000 then every one pip move will be $10 (a pipette will be $1) and if he/she buys a mini lot ($10,000) then one pip move will be $1 and a pipette will be 10 cents (or its equivalent in the currency that the account has been funded, i.e. euros).