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Pip (FX Trading)

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Written By
Dan Buckley
Contributor Image
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.
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Updated
Apr 28, 2023

What Is a Pip in Forex Trading?

In FX (foreign exchange or forex) trading, a pip stands for “percentage in point” or sometimes “price interest point.”

It is a unit of measurement used to express the smallest incremental movement in the exchange rate of a currency pair.

A pip is typically equal to 0.0001 for most currency pairs, except for those involving the Japanese yen, where a pip is equal to 0.01.

The value of a pip represents the change in the fourth decimal place for most currency pairs.

For example, if the EUR/USD currency pair moves from 1.0500 to 1.0501, it has increased by one pip. Similarly, if the USD/JPY currency pair moves from 129.00 to 129.01, it has also increased by one pip.

 

What Are Pips Most Commonly Used For?

Pips are essential for measuring profits, losses, and spreads in FX trading.

Traders often refer to pip values to determine the potential risk and reward of a trade.

The actual monetary value of a pip depends on the trade size or position volume.

For example, if you have a standard lot position (100,000 units) and the USD/JPY pair moves by one pip, the monetary value of that pip would be different from a mini lot (10,000 units) or a micro lot (1,000 units).

 

Pipette or Fractional Pip

Note that some currency pairs and trading platforms may quote exchange rates with an extra decimal place, known as a pipette or fractional pip.

In such cases, a pipette represents a tenth of a pip, or 0.00001 in most cases.

 

How to Calculate Pips in Forex

 

Final Word

Understanding pips and how they affect your trades is important for risk management and calculating potential profits or losses in the forex market.