What is a Pip in Forex trading?
“a percentage in point” or “price interest point”—which is abbreviated as “pips”
Pips—a fundamental term in forex trading
A pip means the fluctuation of the value between two currencies, and normally it is the last decimal place of a price quote.
The major currencies are traditionally priced to four decimal places, and a pip is one unit of the fourth decimal point: for dollar currencies this is to 1/100th of a cent.
According to Investopedia, we can summarize “pips” as:
1.Forex currency pairs are quoted in terms of 'pips', short for percentage in points.
2.In practical terms, a pip is one-hundredth of one percent, or the fourth decimal place (0.0001).
3.Currency base pairs are typically quoted where the bid-ask spread is measured in pips.
Pips—An Example
For instance, if EUR/USD moves from 1.2600 to 1.2601, then the .0001 USD increase in value is one pip. As we just saw for EUR/USD, it is 0.0001. That is to say a pip is more commonly referred to as 1/100th of 1%.
More practical example:
Assume that we have a 100,000 GBP/USD position now. If we had a short GBP/USD position and the prices moved up by 20 pips, it would be a loss of $200. If the prices moved down by 30 pips, it would be a $300 profit.
“a percentage in point” or “price interest point”—which is abbreviated as “pips”
Pips—a fundamental term in forex trading
A pip means the fluctuation of the value between two currencies, and normally it is the last decimal place of a price quote.
The major currencies are traditionally priced to four decimal places, and a pip is one unit of the fourth decimal point: for dollar currencies this is to 1/100th of a cent.
According to Investopedia, we can summarize “pips” as:
1.Forex currency pairs are quoted in terms of 'pips', short for percentage in points.
2.In practical terms, a pip is one-hundredth of one percent, or the fourth decimal place (0.0001).
3.Currency base pairs are typically quoted where the bid-ask spread is measured in pips.
Pips—An Example
For instance, if EUR/USD moves from 1.2600 to 1.2601, then the .0001 USD increase in value is one pip. As we just saw for EUR/USD, it is 0.0001. That is to say a pip is more commonly referred to as 1/100th of 1%.
More practical example:
Assume that we have a 100,000 GBP/USD position now. If we had a short GBP/USD position and the prices moved up by 20 pips, it would be a loss of $200. If the prices moved down by 30 pips, it would be a $300 profit.
| 100,000 GBP/USD | Long position | Short position |
|---|---|---|
| Prices up 20 pips | Profit $200 | Loss $200 |
| Prices down 30pips | Loss $300 | Profit $300 |