In forex trading, a pip is a unit of measurement used to denote changes in the exchange rate of currency pairs. The term “pip” stands for “percentage in point” or “price interest point.” It represents the smallest incremental movement in the price of a currency pair.
Most currency pairs are quoted with four decimal places, except for the Japanese yen pairs, which are typically quoted with two decimal places. For example, if the EUR/USD currency pair moves from 1.2500 to 1.2501, that is a one-pip movement. Similarly, if the USD/JPY currency pair moves from 110.50 to 110.51, that is also a one-pip movement.
The value of a pip depends on the lot size of the trade. In standard lots, which represent 100,000 units of the base currency, one pip typically equals $10 for most currency pairs. However, for currency pairs where the Japanese yen is the quote currency, one pip is usually worth around $8. In mini lots (10,000 units) and micro lots (1,000 units), the value of a pip is correspondingly smaller.
It’s important to note that the pip value may vary slightly depending on the specific forex broker, the currency pair being traded, and any applicable fees or commissions. Therefore, it’s always a good idea to check with your broker to determine the exact pip value for the currency pairs you are trading.