What Are Fractional Pips? Benefits Every Forex Trader Should Know

Understanding price movements down to the smallest detail can mean the difference between consistent profits and missed opportunities. Fractional pips represent one of those details that many traders overlook, yet they fundamentally affect spreads, order precision, and overall trading costs. In this guide, we break down what fractional pips are, how they work in real trading scenarios, and why they matter for anyone serious about CFD and forex trading.

Quick Answer: Why Fractional Pips Matter to Your Trading

Fractional pips, also called pipettes, are one-tenth of a standard pip. They became standard on most ECN-style forex feeds around 2010 when brokers began quoting prices to five decimal places for most currency pairs and three decimals for yen pairs.

Here’s the core takeaway: fractional pips give you tighter spreads, more precise entry and exit points, and more accurate profit/loss and risk calculations. These aren’t minor improvements. They compound into real money over time.

Consider this concrete example: EUR/USD quoted at 1.18453. The “3” at the end is the fractional pip. If your broker quotes 1.18450 instead (without the fractional pip), you’re dealing with less precise pricing. That 0.3-pip difference might seem trivial on a single trade, but across hundreds of trades, it translates to several extra dollars per lot in spread costs or missed profit.

For forex traders running Expert Advisors on platforms like MT4 and MT5, especially on low-latency servers, fractional pip pricing significantly affects scalping and high-frequency strategies. When your EA triggers entries based on micro-movements, having that fifth decimal place isn’t optional. It’s the difference between capturing the edge and watching it evaporate in the spread.

What Are Pips and Fractional Pips?

A pip, short for price interest point, is the conventional unit of price movement in the forex market. For most currency pairs like EUR/USD or GBP/USD, one pip equals the fourth decimal place, or 0.0001. For Japanese yen pairs like USD/JPY, one pip is the second decimal place, or 0.01.

A fractional pip, often called a “pipette” or “micro pip,” is one-tenth of a pip. It typically appears as a fifth decimal place on major currencies and a third decimal place on JPY pairs. So when you see EUR/USD quoted as 1.18453, that final “3” is the fractional pip. When you see USD/JPY at 150.123, the “3” is the fractional pip.

Brokers like Switch Markets started widely offering fractional pip pricing in the late 2000s as electronic trading platforms deepened market liquidity. Before this shift, interbank prices were often rounded to whole pips, meaning retail traders paid wider spreads that didn’t reflect true market conditions. Fractional pips brought retail pricing closer to what institutions see.

Let’s walk through a simple calculation. If EUR/USD moves from 1.18453 to 1.18468, that’s a move of 1.5 pips, or 15 fractional pips. You calculate this by subtracting: 1.18468 - 1.18453 = 0.00015. Since one pip is 0.0001, the move is 1.5 pips.

This granular price movements capability allows traders to measure prices with far greater accuracy than the old four-digit system permitted.

How Fractional Pips Work in Real Quotes

Modern MT4/MT5 brokers display 5-digit quotes for non-JPY pairs and 3-digit quotes for JPY pairs. This format includes fractional pips by default, though some traders don’t realize what that fifth digit represents.

Practically, what does it look like? Take the EUR USD pair quoted as 1.18527. The breakdown works like this: “1.1852” represents the pip level, and “7” is the fractional pip, equal to 0.1 of a pip. When the price moves from 1.18527 to 1.18537, that’s exactly one pip movement, or 10 fractional pips.

For USD JPY at 150.487, the same logic applies differently due to how yen pairs work. Here, “150.48” is the pip level, and “7” is the fractional pip. A move from 150.487 to 150.497 equals one pip.

In a nutshell, with fractional pip pricing, spreads become more transparent. A quote showing bid 1.18527 and ask 1.18539 reveals a spread of 1.2 pips, or 12 fractional pips. Without fractional pricing, this might have been displayed as a 1-pip or 2-pip spread, obscuring the true trading costs.

Key Benefits of Fractional Pips Every Trader Should Know

Fractional pips benefit traders through three main channels: tighter spreads, more precise order placement, and more granular performance measurement. Each of these advantages can have a meaningful impact on trading costs, execution quality, and overall strategy effectiveness.

Tighter Spreads and Lower Trading Costs

Tighter spreads translate directly into reduced trading expenses. Under legacy pricing, a typical EUR/USD spread might be displayed as 2.0 pips because brokers rounded to whole numbers. With fractional pip pricing, that same market condition may instead appear as 0.8–1.2 pips. On a single standard lot (100,000 units), one pip is roughly equal to $10, meaning a 2.0-pip spread costs about $20 per round-turn trade, while a 1.0-pip spread costs about $10. For active traders placing multiple trades per day, this difference compounds quickly and can significantly improve net profitability.

More Precise Entries and Exits

Fractional pips allow traders to place orders at exact price levels rather than rounding to the nearest whole pip. For example, if the analysis suggests buying at 1.18523 instead of 1.18520, decimal precision enables that exact execution. This added accuracy reduces price slippage and improves fill quality, which is especially important for scalpers and short-term traders targeting small price movements. Even a 0.3-pip improvement per trade can add up substantially over dozens or hundreds of trades.

Finer Risk Management Control

Decimal precision also enhances stop-loss and take-profit placement. Instead of rounding risk levels to 17 or 18 pips, traders can set a stop at exactly 17.3 pips, aligning more accurately with technical analysis levels such as support and resistance zones. This finer control allows risk-to-reward ratios to be managed more precisely and helps maintain consistency across trading strategies.

Essential for Algorithmic and High-Frequency Strategies

For algorithmic trading, fractional pips are critical. Expert Advisors (EAs) running on trading platforms can be programmed to react to movements of just a few tenths of a pip. In fast-moving markets where conditions shift within milliseconds, strategies may depend on rules like entering only when spreads fall below 0.8 pips or when the price improves by 0.5 pips from a reference level. Without fractional pip pricing, many of these precision-based automated strategies would not be feasible.

Here’s the core takeaway: fractional pips give you tighter spreads, more precise entry and exit points, and more accurate profit/loss and risk calculations. These aren’t minor improvements. They compound into real money over time.

Risk Management and Position Sizing With Fractional Pips

In forex and CFD trading, risk per trade is typically defined in pips, and fractional pips allow traders to match risk more exactly to account size and market volatility.

Consider this practical scenario: You have a trading account with $10,000 and follow a rule of risking 1% ($100) per trade. Your analysis suggests placing a stop-loss 18.6 pips away from entry. With fractional pips, you use exactly 18.6 pips for your calculated pip and position size calculation rather than rounding to 18 or 19. For that purpose, you can regularly use our Pip calculator and our Forex Profit calculator, which support fractional pip pricing.

Here’s how the math works: If your pip value on EUR/USD is roughly $10 per pip on a standard lot, you need to risk $100 divided by 18.6 pips, which equals approximately 0.54 lots. Rounding your stop to 19 pips would suggest 0.53 lots; rounding to 18 pips suggests 0.56 lots. While these differences seem small, managing risk precisely helps maintain consistent risk tolerance across all trades.

Volatility indicators like ATR (Average True Range) also benefit from fractional precision. If ATR reads 75.6 pips for EUR/USD during a volatile London session versus 74 pips shown on rounded data, you get a more accurate picture of market movements for setting stops and targets. Other day trading indicators have also improved significantly in accuracy.

Crucially, margin and trading leverage don’t change with fractional pips. What changes is the granularity of risk control, which supports professional risk management frameworks in which every fraction counts in calculating profits and losses accurately.

Bear in mind that Switch Markets' pip value calculator is designed to handle fractional pips automatically. Additionally, when your account currency differs from the quote currency, our calculator adjusts pip values accordingly, and fractional precision makes that conversion more accurate.

Use Our Pip Calculator

Scalping, Algorithmic Trading, and Fractional Pips

Scalpers, high-frequency traders, and EA users are the groups that benefit most from fractional pip pricing. Their success depends on capturing small price fluctuations that simply weren’t visible under legacy pricing systems.

A typical scalping plan might target 3 to 5 pips profit per trade on EUR/USD with an average spread under 1 pip. Thanks to fractional pips, tight spreads of 0.5 to 0.8 pips are now common with quality brokers. Why does shaving 0.2 to 0.4 pips off the spread matter? Because of over 100+ trades per day, saving $2 to $4 per standard lot per trade equals $200 to $400 daily in reduced costs. That’s the difference between a profitable month and a losing one.

Algorithmic strategies often trigger entries on conditions like “price improves by 0.5 pips” or “spread drops below 0.8 pips.” These conditions are only possible with fractional pips. An EA watching for micro-movements needs that fifth decimal place to function correctly.

These strategies rely heavily on connectivity, milliseconds, and tick accuracy. This is where hosting MT4/MT5 on ForexVPS near major liquidity hubs like London LD4 or New York NY4 minimizes latency, so fractional-pip opportunities aren’t lost to delay.

Consider a concrete scenario: during a high-impact event like the US NFP release, spreads and prices can move by dozens of fractional pips within milliseconds. Market liquidity surges, bid price quotes update rapidly, and EAs need to react at that micro level. Low-latency VPS hosting helps ensure your automated system doesn’t miss these opportunities while your home internet connection buffers.

Understanding pips and their fractional components becomes even more critical during these volatile moments when the ability to anticipate market movements and execute instantly separates successful trading from watching profits disappear.

How Fractional Pips Affect Trading Costs and Spreads

Spreads are quoted in pips, and with fractional pip pricing, they often appear as 0.3, 0.5, or 0.8 pips rather than whole numbers like 1 or 2 pips. This precision changes how traders should think about trading costs.

Here’s a concrete comparison: