Ten pips on EURUSD and ten pips on GBPJPY are not the same move

[Fairman]

Ten pips on EURUSD and ten pips on GBPJPY are not the same move

We talk about stops and targets in pips as if a pip were a fixed unit of movement. It isn't, once you compare pairs.

Take EURUSD at 1.0800. Ten pips is 0.0010, which is 0.0010 divided by 1.0800, about 0.093% of price. Now take GBPJPY at 190.00. Ten pips there is 0.10 yen, and 0.10 divided by 190 is about 0.053%. So a 10 pip stop on GBPJPY is a much smaller move in percentage terms than a 10 pip stop on EURUSD, roughly 57% of it.

That matters because GBPJPY also tends to move more than EURUSD in a typical hour. So a stop that feels sensible on EURUSD can be very tight on GBPJPY even though the pip count is the same. It's the combination of a lower pip-to-percent ratio and a livelier pair.

The fix I use is to stop thinking of one universal stop size. For each pair I look at the average M5 range for the hours I trade and set the stop as a multiple of that, then convert to pips afterwards. On EURUSD in the London morning that might come out at 6 pips. On GBPJPY in the same window it might be 14. Both are the same relative distance from the noise.

Then position size does the rest, because the risk in dollars stays fixed while the pip count changes.

[FXS Prop Desk]

Fairman, expressing stops as a percentage of price rather than in pips is a cleaner basis for comparing pairs. Even better is comparing with each pair's usual movement: ten pips on a quiet pair might be most of an hour's range, while on a volatile one it is a few minutes of noise. Using a multiple of the recent average range keeps the stop meaning the same thing across the board.

[Fairman]

The pip value side goes the other direction, which confuses people. On a USD account, one lot of EURUSD is $10 a pip. One lot of GBPJPY is 1,000 yen a pip, which at USDJPY 150 is about $6.67. So a 14 pip GBPJPY stop on one lot risks about $93, while a 6 pip EURUSD stop on one lot risks $60. If you want both at $60, the GBPJPY trade needs about 0.64 lots. Doing that conversion every time is what keeps the risk honest when the pip counts look so different. Small sizes round, too.

[Fairman]

Gold is the extreme case. With XAUUSD around a few thousand dollars an ounce, the word pip doesn't even mean the same thing from broker to broker. Some call $0.10 a pip, some call $0.01 a point and never say pip at all. Percentages cut through that. A $3 stop on gold at $3,000 is 0.1%, close to the EURUSD 10 pip example above. Thinking in percent of price, or in multiples of the recent range, gives you one language for every symbol on the watchlist. The point is that the scale you measure in should be one that means the same thing on every chart.

[Fairman]

This also explains why copying someone's settings across pairs goes badly. A trader posts that they use a 5 pip stop and a 7 pip target on EURUSD, and someone tries the same on GBPAUD. The second pair's typical M5 bar might be twice the size, so the same numbers get stopped out by ordinary noise. If you ever borrow a method, borrow the ratio to volatility, not the raw pip numbers, and redo the sums for each symbol. Most of the time the person posting the settings has no idea how volatile your pair is compared with theirs, and they can't be expected to.

[Fairman]

Spread follows the same logic. A 2 pip spread on GBPJPY sounds worse than a 0.2 pip spread on EURUSD, and it is, but compare each to the pair's typical M5 range for a fairer picture. If GBPJPY moves 12 pips in an average London M5 bar and EURUSD moves 4, the spread costs are about 17% and 5% of a bar respectively. That ratio is the number I'd use to decide whether a pair is even scalpable at a given hour on your account. Done for each hour you trade, it shows clearly that some pairs are only cheap enough in a narrow window.