Pip
A pip is the standard unit of price movement in forex — for most pairs, a change in the fourth decimal place of the quote. If EURUSD moves from 1.0850 to 1.0851, it has moved one pip.
For pairs quoted in Japanese yen, a pip is the second decimal place. Many platforms also quote one extra digit — a tenth of a pip, sometimes called a pipette — which is why you see spreads written as 0.8 pips.
A pip only becomes money through lot size. On EURUSD, one pip is worth about $10 per standard lot, $1 per mini lot, and $0.10 per micro lot. Stops, targets, and the spread are all measured in pips, then converted to dollars by the size you trade.
Example
You sell 0.50 lots of EURUSD at 1.0900 and buy it back at 1.0875, a fall of 25 pips. Pip value is 0.50 × $10 = $5 per pip, so the profit is 25 × $5 = $125 before costs.
In a prop-firm challenge
Thinking in pips makes rule math fast. With a $400 daily loss limit and positions of 0.40 lots ($4 per pip), the whole day has a budget of 100 pips of adverse movement — two 50-pip stops, or four 25-pip stops. Traders who convert their limits into a pip budget before the session are less likely to discover a breach after the fact, a pattern discussed in why traders fail challenges.