TRADING BASICS | What is a Pip? 📚
Updated
📏Pip is a measurement of the price change in a currency pair trading on the forex market. In most cases, pip is the equivalent to 1/100th of 1%.
That rule is applicable to all the currency pairs quoted to the 4th decimal place like EURUSD.
➡️Current EURUSD price is 1.1696
6 is the 4th decimal place representing a pip.
If the pair moves from 1.1696 to 1.1697, that 0.0001 USD rise in value is ONE PIP.
❌That rule is not applicable, for example, to USDJPY which is only quoted to 2 decimal places.
➡️Current USDJPY price is 109.62
2 is the 2nd decimal place representing a pip.
If the pair moves from 109.62 to 109.63, that 0.01 JPY rise in value is ONE PIP.
🦉The word pip stands for "price interest point" or "percentage in point".
Even though a pip might appear as an extremely small unit of measurement, in leverage trading even the one pip price change of the instrument may lead to a sufficient gain or loss.
➗How to calculate the value of a pip?
Each and every currency has its own relative value.
In the following example, I will show you how to calculate the value of a pip for a particular currency pair.
USD/CAD = 1.2753
Reading that as 1 USD to 1.2753 CAD or 1 USD / 1.2753 CAD
1 Pip =
[(0.0001 CAD) / (1.2753)] * 1 USD = 0.00007841 per unit traded.
Following this example, if we trade 10.000 units of USD/CAD, then a one pip change to the exchange rate would be approximately 0.78 USD change in the position value.
Alternatively, pip value can be calculated with various calculators & apps.
I hope that with these examples and my explanation you will understand the concept of a pip easily.
Let me know what do you want to learn in the next posts!
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