Pip sizes are one of the most important concepts in forex trading. Yet many traders overlook how pip sizes vary across different currency pairs. This is especially true when comparing major pairs to exotic pairs. The differences in pip sizes might seem small, but they have major implications for profit calculation, risk management, and trade execution.
So why do pip sizes differ between major and exotic pairs? And what does this mean for your trading strategy?
Let’s break it down.
What Are Pip Sizes and Why Do They Matter?
In forex trading, pip stands for “percentage in point.” It’s the smallest standardized movement in a currency pair. For most pairs, one pip equals 0.0001. However, for yen-based pairs like USD/JPY, a pip is typically 0.01.
Understanding pip sizes is critical because:
- They determine how much you gain or lose per trade.
- They are used in setting stop-losses and take-profits.
- They affect your trade size through forex position sizing.
For example, if EUR/USD moves from 1.1000 to 1.1005, that’s a 5-pip movement. If you’re trading a standard lot, those 5 pips equal $50. But if you’re trading a pair like USD/TRY or EUR/ZAR, the math changes dramatically.
And that’s where the differences begin.
Major vs Exotic Currency Pairs: What’s the Difference?
Before we understand pip variations, let’s quickly define major vs exotic currency pairs.
Major currency pairs:
- Include USD on one side.
- Are heavily traded and very liquid.
- Examples include EUR/USD, GBP/USD, USD/JPY, USD/CHF.
Exotic currency pairs:
- Pair a major currency with a currency from a smaller or emerging economy.
- Include pairs like USD/TRY (Turkish Lira), USD/ZAR (South African Rand), or EUR/SEK (Swedish Krona).
- Tend to be less liquid and more volatile.
These differences in liquidity and demand directly influence pip sizes and spread behavior.
How Pip Sizes Are Calculated in Forex?
The pip size calculation depends on the quote currency. In simple terms:
Pip value = (One pip / Exchange rate) × Lot size
Let’s use two examples for a standard lot (100,000 units):
- EUR/USD at 1.1000:
- Pip value = (0.0001 / 1.1000) × 100,000 = $9.09
- USD/TRY at 32.5000:
- Pip value = (0.0001 / 32.5000) × 100,000 = $0.31
That’s a massive difference. The pip value in the exotic pair is much smaller. So, while both trades might move the same number of pips, the financial impact is very different.
This is why forex pip value calculation must be adjusted based on the pair being traded.
Why Pip Sizes Differ Between Major and Exotic Pairs?
Now that the basics are clear, let’s dig into the core reasons pip sizes differ across pairs.
1. Quote Currency and Exchange Rate Impact
The quote currency plays a huge role in pip sizes. Major pairs like EUR/USD have quote currencies with relatively stable exchange rates. Exotic pairs often involve currencies with very high or very low values compared to the USD or EUR.
The higher the exchange rate of the quote currency, the smaller the pip value. This is basic math from the pip formula.
For instance, USD/JPY at 145.00 will have a much smaller pip value than EUR/USD at 1.1000 when measured in base currency terms.
2. Currency Pair Volatility
Exotic pairs experience higher volatility due to political instability, inflation issues, or low trading volumes. This means prices can swing by hundreds of pips in a day.
Let’s compare:
- EUR/USD daily range: 60–100 pips
- USD/TRY daily range: 200–500 pips
To make trading manageable, brokers and platforms adjust the way pip sizes are presented. They might increase decimal rounding or shift the displayed pip level to better reflect practical movement.
This is also why spread sizes in exotic pairs tend to look huge—because of volatility, not just liquidity.
3. Forex Position Sizing and Risk Control
Position sizing strategies rely on pip values. With major pairs, a standard lot move of 1 pip equals roughly $10. But in exotic pairs, the value of 1 pip can be $1 or less.
If a trader sets a 50-pip stop-loss in EUR/USD, they might risk $500. But in USD/ZAR, the same 50 pips might mean risking just $50. However, that trade could hit the stop-loss in seconds due to higher currency pair volatility.
Therefore, traders must adapt their forex position sizing to match pip size differences across pairs. Otherwise, risk is either too high or too low, distorting the overall strategy.
4. Broker and Platform Display Differences
Many brokers show major pairs with five decimal places (e.g., 1.12345) and define the fourth digit as the pip. The fifth is a pipette, or fractional pip.
But exotic pairs may have only three or four decimal places, depending on the quote currency’s magnitude.
Examples:
- EUR/USD: 1.10023 (pip = 0.0001)
- USD/JPY: 145.27 (pip = 0.01)
- USD/THB: 35.244 (pip = 0.001)
- USD/TRY: 32.7530 (pip = 0.0001)
This creates visual inconsistency. The pip size feels different, even though the underlying definition hasn’t changed. It’s just the broker adjusting the presentation.
Real-World Example: Pip Size in Practice
Suppose you’re trading two currency pairs:
- Trade 1: Buy 1 lot of EUR/USD at 1.1000, exit at 1.1050 (gain of 50 pips).
- Profit = 50 pips × $10 = $500
- Trade 2: Buy 1 lot of USD/TRY at 32.0000, exit at 32.0500 (gain of 500 pips).
- Profit = 500 pips × $0.31 = $155
Even though the USD/TRY trade moved ten times more in pips, the profit was lower. This highlights the critical need to account for forex pip value calculation, especially when trading exotic currencies.
How to Adjust Your Strategy for Different Pip Sizes?
If you trade both major and exotic pairs, here’s what you must do:
- Recalculate pip values for every pair before opening a trade.
- Adjust lot sizes based on pip value, not just pip distance.
- Use wider stop-losses in exotic pairs to accommodate higher volatility.
- Expect higher spreads and slippage in exotic currency pairs.
- Avoid over-leveraging just because pip values seem small.
Forex position sizing should always take into account pip size, not just the perceived risk.
Should Retail Traders Focus on Exotic Pairs?
Trading exotic pairs might seem attractive due to higher volatility and big pip moves. But there are hidden costs.
Pros:
- Big intraday swings offer profit potential.
- Diversification from over-traded majors.
- Occasional trends based on emerging market events.
Cons:
- High spreads and commissions.
- Slippage during low liquidity hours.
- Smaller pip values mean needing bigger moves to profit.
- Frequent stop-outs if position sizing is not adjusted.
Exotic currency pairs are not ideal for all traders. If you do trade them, understanding pip sizes is non-negotiable.
Pip Size and Swap Rates: Another Hidden Risk
Exotic pairs often come with high overnight swap rates. These are fees (or credits) charged when holding a position overnight, based on interest rate differentials.
For example:
- Holding USD/TRY long might earn you interest.
- But holding TRY/JPY could cost a fortune due to negative swaps.
With small pip values, your profits can be eaten up by swap costs if you’re not careful.
That’s why you must always factor in swap risks, especially in exotic pairs with longer holding periods.
Final Thoughts: Know Your Pips Before You Trade
Pip sizes are more than just numbers on a chart. They determine how much you win, lose, and risk on each trade. When you switch from major pairs to exotic ones, the rules change.
If you want to trade successfully across multiple currencies, remember:
- Pip sizes vary depending on quote currency and volatility.
- Forex pip value calculation must be tailored for each pair.
- Forex position sizing depends heavily on pip size and risk per trade.
- Currency pair volatility and broker display methods also affect pip interpretation.
Don’t ignore pip sizes—they’re the foundation of all smart trading decisions.
Click here to read our latest article What Is a Synthetic Safe-Haven and How to Trade It?
I’m Kashish Murarka, and I write to make sense of the markets, from forex and precious metals to the macro shifts that drive them. Here, I break down complex movements into clear, focused insights that help readers stay ahead, not just informed.
This post is originally published on EDGE-FOREX.
