This article is about the unit of change in an exchange rate. For the countable items, see Pip (counting).
In foreign exchange markets, a percentage in point (pip) is a unit of change in an exchange rate of a currency pair. A pip is the smallest whole unit price move that an exchange rate can make, based on forex market convention.[1]
It's important because forex trading involves tiny fluctuations in exchange rates, and Pips provide a standardized way to express these changes. By using Pip, traders can easily understand and discuss price movements, calculate profits and losses, and manage risks more effectively.
The major currencies (except the Japanese yen) are traditionally priced to four decimal places, and a pip is one unit of the fourth decimal place: for dollar currencies this is to 1/100 of a cent. For the yen, a pip is one unit of the second decimal place, because the yen is much closer in value to one hundredth of other major currencies.[2]
In the forward foreign exchange market, the time value adjustment made to the spot rate is quoted in pips, or FX points or forward points.[3]
A pip is sometimes confused with the smallest unit of change in a quote, i.e. the tick size. Currency pairs are often quoted to four decimal places, but the tick size in a given market may be, for example, 5 pips or 1/2 pip.
^"What Are Pips in Forex Trading and What Is Their Value?". Retrieved 24 July 2023.
^Abdulla, Mouhamed (March 2014). Understanding Pip Movement in FOREX Trading (PDF) (Report). Archived from the original (PDF) on 2020-03-31. Retrieved 2014-03-26.
^"Calculating fx forward points". Retrieved 11 December 2019.
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