A pip is the smallest standard movement in a currency-pair quote - the 4th decimal place for most pairs (0.0001) and the 2nd for JPY pairs (0.01). The pip *value* is what one pip is worth in your account currency for a given trade size.
When to use it
Before every trade, to know exactly how much one pip of movement costs you. Combined with your stop-loss in pips it tells you the dollar risk of the trade - the foundation of every position-sizing decision.
Formula
Pip Value = (One Pip / Exchange Rate) × Lot Size, then converted to your account currency.
Worked example
For 1 standard lot (100,000 units) of EUR/USD with the quote at 1.0850 in a USD account: pip value = 0.0001 / 1.0850 × 100,000 = $9.22.
What is a pip in forex?
A pip is the standard unit of price change for a currency pair. For most pairs it is 0.0001 (the 4th decimal). For JPY-quoted pairs it is 0.01 (the 2nd decimal).
Why does pip value depend on exchange rate?
For pairs where the quote currency is not your account currency, the pip value must be converted using the current exchange rate. That conversion changes the dollar value as the market moves.