Pip

What Is A Pip In Forex Trading?

Thursday, 29-Jul-2010 14:30:18 CDT

In Forex trading terms pip is an abbreviation for the phrase percentage-in-point.

Sometimes you'll find it called a point or basis point.

It's the smallest move a currency can make on the charts.

And it's the unit of measurement Forex traders use to track the fluctuations in value of currency pairs trading on the foreign exchange markets.

Pip values are different for most currency pairs and they're determined by the second currency listed in a pair which is called the 'quote currency'.

Pip values can also increase or decrease proportionately to the notional amount of currency trading.

Pip values are fixed where the U.S. dollar is the quote currency.

The EUR/USD currency pair is a perfect example.

FX market price quotes are written out to the fourth numeral right of the decimal point.

When the quote currency is /USD - the value of a pip is equal to $0.0001 (1/100th of 1%).

That means that if you're trading this pair in 10,000 currency unit lots with a $10k notional amount, a pip's value will be $1.00.
(One U.S. dollar)

And, if you're trading a standard lot (assuming a notional value of $100k), one pip equals $10.00.
In which case, a ten pip move in the right direction makes you a hundred bucks.

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