Introduction to Pips and Their Value

During your trading experience, you might have heard of this term numerous times. Whether you actually know what it means or not, we’ll now be providing you with a simple definition of the term.

Currency symbols with forex data

What is a Pip?
The word pip is an acronym. It means “percentage in point” even though it’s also sometimes called the price interest point.

A pip is a rather small measure of change in a currency pair used in the forex market. The measurement can be done in terms of the quote or in terms of the underlying currency. Most pips have the value of 0.0001 price change. Such as the EUR/USD currency pair price possibly changing from 1.5067 to 1.5068, this means that there is a one-pip movement.

But there are also exceptions to this rule, having the price quoted at only 2 decimal places, not 4. In such cases, a pip is at 0.01 instead of 0.0001. An example of this will be the Japanese yen. If the USD/JPY currency pair increases from 108.92 to 108.93 then there is a one-pip change as well.

To put it simply, a pip is a unit of measurement which is used to express the change in value between two currencies, the smallest movement that a currency pair can make. This is usually found at the last decimal place of a quotation.

What is the value of a Pip?
This will actually depend on your lot size when you’re trading. You should also know that the difference between the bid and ask is called the spread. A spread is  the way your forex broker makes money since most brokers don’t even collect any official commission.

The position of your pips in trading can determine the situation you’re trade is currently in. A trade with positive pips means that you’re making a profit while a negative pip usually means that your trade has sunk.

Most pip values are determined by the base value of your trading account. Such as when trading a mini lot (10k units of currency), each pip is worth roughly one unit of the currency that your account is denominated in.

Opening a USD-denominated account followed by currency pairs where the US dollar is the second or quote currency will always put the value of your pip on a mini lot at $1. The only time you’ll see any change is if or when the greenback’s value changes significantly by more than 10 percent wither direction, also if the US dollar is not part of the pair (e.g. EUR/GBP, GBP/JPY, EUR/CHF, etc.) or is the base currency.

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