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What is a Pip?

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Published By:
AVFX Trading HUB
On June 20, 2021
Posted in: Blog

Pip Value In Forex Trading

What is a pip in forex trading, stocks, CFDs, Bitcoin and Nasdaq? Pip is short for “Price Interest Point” and it represents a tiny measure of the change in a currency pair in the forex market. It can be measured in terms of the quote or the underlying currency.

 

Let’s say for example EUR/USD moves from 1.1890 to 1.1891 that is a .0001 USD rise in value known as 1 pip. The last decimal place of a price quote is what we call a pip.

What is a Pipette?

In the forex market there are other brokers which quote currency pairs beyond the standard “4 and 2” decimal place to a rare “5 and 3” decimal places. They are quoting half a pip commonly known as pipettes or tick size.

How do we calculate Pip Value?

In simpler practical terms, let’s say you bought GBP/USD and its price was at 1.35001 and it rose to 1.40000 then this means that the GBP currency has gained value by 500 pips. The pipette 0.00001 is usually ignored in currencies except when trading indices like boom and crash on platforms like deriv.com.

 

Now depending on the lot size you used to open the trade this will determine how much money you gain or lose. Let’s say for example you entered the GBP/USD trade risking $10.00 per pip, this means per every price movement (pip) you gain or lose $10.00.

Currency
Pair

Previous
Price

Current
Price

Gain
Loss

GBP/USD

1.40000

1.35001

+500 PIPS

The above table illustrates how movement benefit a trader in the forex market. I hope it’s starting to make sense now. If your sold or went “bearish” as they like to call it, you would have made huge profits. However catching pips like these need time, patience and a huge account balance. It’s for those who are known as swing traders. Picture below shows a trading chart taken from the Deriv MT5 Platform.

GBPUSD price chart showing a 500 pip bearish move
CEO & Founder of the AVFX Trading HUB Company/Website

Written By: Allen Matshalaga

Allen is a professional forex trader, blogger and an online enthusiast who spends most of his time testing and reviewing legit ways of making money online and is determined to help others succeed.

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3 thoughts on “What is a Pip?”

  1. Austin Grieser

    Aw, this was an incredibly good post. Finding the time and actual effort to generate a great article… but what can I say… I hesitate a whole lot and never manage to get anything done.

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