FOREX101: What is a PIP?

“I just made 100 PIPs on GBPUSD, I’m done for the week”

We often hear the word “PIP” get thrown around but what does it really mean? I once wondered why FOREX traders are so interested in making PIPs instead of making money, until I understood how movements in the markets can be measured with PIPs.

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Price Interest Point (PIP) is the universal standard unit of measurement in the FOREX markets. For most pairs, standard or otherwise, a PIP change is a change in unit of the 4th decimal place. But for the Japanese Yen pairs, a PIP change is a change in unit of the 2nd decimal place.

Let’s look at some examples of price movements in PIPs

EURUSD: 1.2300 – 1.2350 = 50 PIPs (0.0001 *50)

USDJPY : 106.00 – 106.75 = 75 PIPs (0.01 * 75)

So depending on the lot size (quantity traded), a PIP movement could carry a significant dollar amount. Typically, a standard lot on EURUSD is about USD$10/PIP. So if the pair moves 50 PIPs in your favor, you make $500 in profits, vice versa.

Beginners are not recommended to use standard lots. Today, brokers offer micro and nano lots which translate into $1 and $0.1 per PIP respectively. In fact, beginners should trade on a demo account for at least 12 months before deciding to go LIVE.

So here’s what a PIP is! Next time you hear someone talking about how many PIPs they’ve made, I’m sure you’ll get an idea of the magnitude of the price move like a real FOREX trader!

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Till next week, have a good weekend!


Nigel Fernandez


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