What is a PIP?

November 22, 2013 at 12:15 am
In retail FOREX, PIP or Percentage in Point is the smallest normal unit of change (the smallest normal increment) for a currency pair. In other words it is normally the smallest change in price of the currency. Nowadays many FOREX brokers quote prices in tenths of a pip, so they would quote the price of the USDCAD pair as 1.04712,for example.The easiest way to calculate a pip is to ignore the decimal point and to count the fifth digit starting from the left. Therefore, for the majority of currency pairs one pip equals to 0.0001. The exception to this rule is Japanese yen under 100.00. In that case the pip is the fourth digit from the far left or 00.01

So, when I bought the USDCAD pair for 1.0471and the price went up to 1.0495, I made 1.0495 – 1.0471 = 0.0024 or 24 pips.

All currency pairs in retail forex are traded in lots. Each standard lot is worth $100,000 USD of whatever currency is being traded. Therefore, when trading the Canadian dollar, the Euro, or any other currency, you would be trading $100,000 USD worth of that currency. The actual amount of that currency will depend on its current price in USD.

To simplify calculations, one can assume that the standard lot size is 100,000 units. Therefore, for a standard lot, a 1 pip change in price represents a change in 10 units or roughly close to $10. When trading 0.1 lot size (mini lots), one pip would be roughly equal to $1.

For novice traders and people with relatively small starting capital it would make sense to start trading in 0.01 lot sizes (also called micro lots), where each pip would be roughly equal to $0.10