What is a pip? What is its importance in Forex?
For those who may have been reading this blog yet don’t quite understand what it is, allow me to shed some light on its meaning. I realized that in just about all my posts, I write about how many pips a currency pair may have gained or lost but haven’t fully explained what a pip represents. Here is my interpretation of what a pip is:
A pip, acronym for ‘percentage in point’, is the smallest increment by which the price of an exchange rate may change. Pips are recognized as the last digit(number) after the decimal point. For example:
GBP/USD is at 1.4455 and moves to 1.4456 . This pair has moved 1 pip.
In this currency pair, like many others, a pip is calculated as 0.0001 .
In the case of USD/JPY, 1 pip is calculated as .01 as their exchange rates are shown with only two decimals places. Here’s an example:
USD/JPY is trading at 96.72 and moves to 96.82 . It has moved a total of 10 pips.
Do you see it? It is simple subtraction: 96.82 – 96.72 = 10 pips!
Questions? Leave a comment. 🙂