What Is A Pip?

PIP is an acronym for percentage in point and is a unit of measurement to show a change in currency price values.
Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn
What is a pip?
Latest posts by Financial Source Team (see all)

A pip, which is short for point in percentage, is a unit of measurement to show the movement of the price between two currencies.

Pip is a standardised unit of measurement in the Forex markets. It measures the smallest price change for a currency quote.

Pips allow a trader to calculate gains and losses. Their actual value a pip represents will depend on the order placed by a trader.

How Do Pips Work?

Most currency pairs are displayed by four decimal points. It’s the last decimal point that is measured as a pip.

A movement in the last decimal point of a quotation by one digit would be one pip.

For example;

If GBP/USD moves from 1.3060 to 1.3061, that .0001 USD rise in value is one pip.

Some Forex brokers display five decimal points, the fifth decimal point represents 0.1 pips and is refereed to as a pipette .

Japanese pairs are an exception to this rule and only display 2 decimal points.

The second decimal point would show the pip movement, with the third decimal point being a pipette.

For example;

If USD/JPY moves from 109.63 to 109.64, that .01 USD rise in value is one pip.

How To Calculate A Pip’s Value

To calculate the value of a pip by hand, you can use the following formula:

Pip Value = (Pip in decimal places * Trade Size) / Market Price

For example:

Trading 1 lot of EUR/USD with an account denominated in EUR, the calculation would be as follows:

  • One pip in decimals = 0.0001, Trade Size = 100,000, Exchange Rate = 1.13695
  • 0.0001 * 100,000 = 10
  • 10 / 1.13695 = 8.79546

So one pip in this case would be equivalent to 8.79546 USD.

There are also many online calculators that will automatically calculate the value of a pip to save you some time.

This calculator from Myfxbook is popular with traders.

 

 

0 0 vote
Article Rating

ARTICLE SEARCH

CATEGORIES

TRADE WITH AN EDGE

A Financial Source subscription is just $97 per month. Cancel in two clicks.
*Limited offer. Normally $247.
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments