Pip

Pip stands for "percentage in point" or "price interest point" and is a unit of measurement used to express the change in value between two currencies in a currency pair. It is a way to quantify price movement in the forex market.

For most currency pairs, this represents a movement in the fourth decimal place. For example, in the EUR/USD pair, if the price moves from 1.1050 to 1.1051, that is a 1 pip move.

For currency pairs involving the Japanese yen (JPY), a pip is typically a movement in the second decimal place. For instance, if the USD/JPY pair moves from 110.10 to 110.11, that’s a 1 pip change.

Some forex brokers quote currency pairs beyond the typical “4 and 2” decimal places, offering quotes with "5 and 3" decimal places instead. These are known as fractional pips, or pipettes.

• Without pipettes, the price of EUR/USD might be quoted as 1.1050 (1 pip movement).
• With pipettes, it might be quoted as 1.10501, meaning the pipette is the fifth decimal place, showing a 0.00001 price movement.

Here is how to read pips:

The profit or loss from a trade is often determined by the number of pips a currency pair moves. For example, if you enter a position in EUR/USD at 1.1050 and the price moves to 1.1100, that's a 50 pip gain.

Understanding pips is essential for effective trading, risk management, and calculating potential gains or losses.