What does PIP mean in Forex?

Have you ever heard the acronym “pip” before? In forex, PIP is an acronym for “percentage in point”. A forex pip is the smallest price move that an instrument can make based on what is happening in the market. Currency pair traders will buy or sell a currency whose value is expressed in relationship to another currency. A pip is one of the most basic concepts of currency pair trading.

To make it simple, a trader who wants to buy the USD/CAD pair would be purchasing US Dollars and simultaneously selling Canadian Dollars. On the other hand, a trader who wants to sell US Dollars would sell the USD/CAD pair, buying Canadian dollars at the same time. If traders use the term “pips” it often refers to the spread between the bid and ask prices of the currency pair. The spread is also where the broker makes his commission. Visit the Forex broker with the best spreads in South Africa. Click here to visit Khwezi Trade.

Have you ever heard the acronym “pip” before? In forex, PIP is an acronym for “percentage in point”. A forex pip is the smallest price move that an instrument can make based on what is happening in the market.

A pip, or ‘point in percentage’, is the smallest standardized unit of measure used to calculate the change in value between two currencies. Pips are utilized by traders when determining spread (the difference) between the bid and ask prices of a currency pair, as well as expressing profit or loss incurred from their trading position.

There are four decimal places for most major currencies, meaning the smallest change is 0.0001 or the fourth digit after the decimal point. Exceptions like Japanese yen only have two decimal places where the pip then becomes the second digit after the decimal point. Even though pairs are mostly quoted to two or four decimal places, some forex brokers will show an additional one known as a pipette or micro pip.

To make it simple, a trader who wants to buy the USD/CAD pair would be purchasing US Dollars and simultaneously selling Canadian Dollars. On the other hand, a trader who wants to sell US Dollars would sell the USD/CAD pair, buying Canadian dollars at the same time. If traders use the term “pips” it often refers to the spread between the bid and ask prices of the currency pair. The spread is also where the broker makes his commission. Visit the Forex broker with the best spreads in South Africa. Click here to visit Khwezi Trade.

The Spread in Forex Trading

The spread is the difference in pips between the bid and ask price of a currency pair. A pip is a measure of market price movement, so when you trade CFDs with Khwezi Trade, we refer to them as points.

The Value of a PIP

pip is an acronym for “percentage in point” or “price interest point.” A pip is the smallest unit of change in a foreign exchange rate. It is usually equal to 1/100th of 1% or 0.0001 in decimal form. For example, if the EUR/USD exchange rate moves from 1.3600 to 1.3650, that 0.0050 uptick in the exchange rate is ONE PIP. pip values vary by currency pair because they are based on the underlying currency of the pair. So, for non-USD pairs, pip values are quoted in terms of U.S. dollars. But for USD pairs, pip values are generally quoted in terms of the secondary currency — unless JPY is one of the pair’s components, in which case pip values are quoted in yen. A pip in forex may be different from one currency pair to another. For instance, at the time of this writing, the pip value for the USD/CHF forex pair is $0.9719 because each pip move on that particular currency pair is worth $0.9719.

How do you calculate Forex pips?

When there is movement in the instrument, it will be measured by pips. We all know that most currency pairs are quoted to a maximum of four decimal places, so the smallest change for these pairs is 1 pip. The value of a pip is calculated by dividing 1/10,000 or 0.0001 by the exchange rate.

Pips and Profitability

We determine the movement of a currency pair by looking at whether a trader made a profit or loss from his or her position at the end of the day. When a trader buys the EUR/USD they will profit if the Euro increases in value relative to the US Dollar. When the trader buys the Euro for 1.1835 and exits the trade at 1.1901, he or she would make 1.1901 – 1.1835 = 66 pips on the trade.

Pip Forex Calculator

To find your pip value for all major currencies, you can use a fast and free pip calculator which does all calculations instantly! You no longer need to worry about endless math formulas or manual calculations! Simply enter your account base currency and choose the currency pair you are trading on. To make your life easier use this calculator to determine the value of a pip in your trading account currency so that you can manage your risk per trade efficiently.

Conclusion

Forex pip is the acronym for “percentage in point” or “price interest point.” A pip is the smallest unit of change in a foreign exchange rate. It is usually equal to 1/100th of 1% or 0.0001 in decimal form. For example, if the EUR/USD exchange rate moves from 1.3600 to 1.3650, that 0.0050 uptick in the exchange rate is ONE PIP.

Pip values vary by currency pair because they are based on the underlying currency of the pair. So, for non-USD pairs, pip values are quoted in terms of U.S. dollars; but for USD pairs, pip values are generally quoted in terms of the secondary currency – unless JPY is one of the pair’s components, in which case pip values are quoted in yen.

The value of a pip may be different from one currency pair to another and can be determined using a pip calculator. When there is movement in an instrument it will be measured by pips and we determine profit or loss by looking at whether a trader made a profit or loss from their position at the end of the day

 

Further reading:

The Benefits of Forex Trading today

Why is MT4 so popular?

Forex PIP explained

Forex trading training

Forex trading market in South Africa