Pip is the short form of “Percentage in point” which is a unit of change in an exchange rate of a currency pair.
Among the major currencies, only Japanese Yen (JPY) is priced to two decimal places. All other major pairs are priced to four decimal places.
There is a formula to calculate the pip value which is given below,
Pip = Lot size x Tick size
Here, Tick size = Smallest possible change is the price
For 1 standard lot (100,000 units) of EUR/USD,
1 pip = 100,000 x .0001 = $10
Here is a formula to calculate profit/loss.
For long positions,
Profit/Loss = Lot size x (Selling price – Buying price)
For short position,
Profit/Loss = Lot size x (Buying price – Selling price)
Originally published at What is a Pip in Forex Trading?