Pip Definition – What is Pip? | CFI LB

pip

The term pip stands for point in percentage and is the measurement of the smallest price move that a currency can make. Take your time to understand this term in detail as it is especially important for forex traders. A pip measures the fluctuation in the exchange rate between the bid and ask prices for a currency pair and is calculated using the last decimal point.

 

The spread in forex trading is quoted in pips and is a measure of the price movement in the foreign exchange market. The value of a pip depends on three things: what currency pair is being traded, the exchange rate, and the trade size. Most pairs are shown with 5 decimal places, but there are some exceptions like Japanese yen pairs that are shown with 3 decimal places. For example, for GBP/USD, it is 0.00001, and for USD/JPY, it is 0.001.

 

Example of a pip

 

Let us say we have a USD/CHF quote of 0.7747. What this means is that for USD 1, you can buy 0.7747 CHF. Assuming there was a rise in the value of one-pip, this quote would increase to 0.7748. The value of the dollar would rise relative to the Swiss franc because $ 1 would allow you to buy slightly more CHF.

 

Key takeaways:

 

  • A pip references a one-pip move in a forex trade.
  • Traders often refer to pips to highlight profit/loss.
  • Most major currency pairs are priced to five decimal places, a pip is usually equal to the fourth figure after the decimal point.

 

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Forex and CFDs are leveraged products that incur a high level of risk. A small adverse market movement may expose the client to lose the entire invested capital. The majority of retail client accounts lose money when trading in CFDs. Please be aware of trading risks and that you could sustain a loss exceeding your deposited funds, even if a stop loss is used.

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