What is Pip (Percentage in Point)

What is Pip

Pip is the smallest change an exchange rate of a currency pair can make.

Pip stands for "Percentage in Point" or sometimes is also called a “Price Interest Point”.

A pip is usually the last decimal place of a quotation. Most currency pairs, like GBP/USD, go out to 4 decimal places. There are some exceptions, like Japanese Yen based currency pairs as well as some commodities such as gold, oil, brent and gas, that are quoted to only 2 decimal points.

Here is an example to figure out what a 1 pip change would look like for GBP/USD pair.

Let’s assume that the currency pair buy price is currently quoted at 1.32711. If the price changes from 1.32711 to 1.32712 that would mean an increase of 1 pip. If the price changes from 1.32711 to 1.32710 that would be a decrease of 1 pip.

A 1 pip move for the USD/JPY pair would be the change from 112.90 to 112.91 because the second decimal point has changed by 1.

As you can see, pip value is expressed in the quote currency (the second currency of the pair).

How to Calculate Pip Value:

The monetary pip value depends on the following three factors:

  • the currency pair being traded,
  • the size of the trade
  • the exchange rate

The calculation of the Pip Value is being made by the following formula:

PIP VALUE = (Pip in decimal places * Trade Size)

Here are the examples of the Pip Value calculation according to the Pip Value Formula:

Example A: 1 pip volume in EUR/USD is equal to 0.0001

Trading position volumeCalculation1 pip value
100,000 EUR100,000 * 0.000110 USD
10,000 EUR10,000 * 0.00011 USD
1,000 EUR1,000 * 0.00010.1 USD
100 EUR100 * 0.00010.01 USD

Example B: 1 pip volume in USD/JPY is equal to 0.01

Trading position volumeCalculation1 pip value
100,000 USD100,000 * 0.011000 JPY
10,000 USD10,000 * 0.01100 JPY
1,000 USD1,000 * 0.0110 JPY
100 USD100 * 0.011 JPY

An increase or decrease in pips represents a Profit or a Loss in your Forex Trade. That is when your trade is positive in pips, you're making a profit and when it is negative in pips, you have a loss.

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