Pip definition

What is a pip?

A pip is a measurement of movement in forex trading, used to define the change in value between two currencies. The literal meaning of pip is ‘point in percentage’, and it is the smallest standardised move that a currency quote can change by. Pips are used by traders to calculate the spread between the bid and ask prices of the currency pair, and express the profit or loss that their position has made.

Most major currencies are quoted to four decimal places, so the smallest change is the equivalent of 0.0001, or the fourth digit after the decimal point. But there are some exceptions, such as the Japanese yen that are only quoted to two decimal places. In these cases, the pip is the second digit after the decimal point. Although most forex pairs will be quoted to two or four decimal places, there are some forex brokers that display an additional decimal, known as a pipette or micro pip.

The spread in a currency pair can be quoted in pips, as it is a measure of the market price movement. A pip can be defined as the equivalent of a ‘point’ of movement – at IG we measure currency moves in pips for CFD trades, but we refer to them as points.

Examples of pips

Let’s take a look at the EUR/USD currency pair. If the market moves from 1.1600 to 1.1601, that 0.0001 increase would be a single pip move.

If you had entered a long position on EUR/USD, and the market moved from 1.1600 to 1.1650, you would have gained 50 pips and profited from the increase. But if the market moved against you, falling from 1.1600 to 1.1550, this decline of 50 pips would mean that your position made a loss.

If we look at the USD/JPY currency pair, a move of 120.01 to 120.02 would be a single-pip move.

You decided to enter a long position on the pair, and the price increased from 120.00 to 120.08. This means that the market has moved by eight pips, and your position would be showing a profit.