What does Pip Stand for? PIP in forex is an acronym for Percentage Interest Point, and this represents the smallest price change in the exchange rate of a currency pair. Most major currency pairs are usually priced to four decimal places 0.
These days, we are starting to see platforms with 5 decimal places and 3 decimal places for the Yen crosses. These are known as fractional pips and represent one-tenth of the regular pip. The relevance of the pip in forex trading is to know what the movement of a currency pair in pips equates to in monetary terms.
In other words, the value of a pip in the currency trade will be used to calculate what the eventual profits or losses in a trade will be. The pip value calculator shown above incorporates these three factors, using just the ask price component of the exchange rate since the value of the base currency is equal to 1.
The trade closed at closed at 1. The pip value will determine how much the 40 pips profit will be in US Dollars and to calculate this, we do the following:. There are other aspects of the pip which the trader must know about, and they are highlighted below.
The forex market is a highly leveraged market. That is the only way traders can control positions in hundreds of thousands of dollars as well as millions of dollars with a small amount of money. However, leverage can radically affect the outcome of trades because the full brunt of any losses are borne by the account, just as the full gains of any profits are enjoyed by the trader. The more leverage used, the riskier your trade position.
To understand the impact of leverage , let us use this example. The reason is simple. If a leverage of Tweaking the leverage will therefore impact the pip value, which will also impact the trade outcome. The pip value in Yen crosses is much different than in other currency pairs. If the currency you are trading involves the Japanese Yen, the value of the pip would not be 0.
Since the JPY is always a base currency, this value 0. Traders can access pip value calculators for free on the internet.
It however pays to understand how the pip. Mail will not be published required. What is a PIP in Forex? Leave a Reply Click here to cancel reply. Practice Trading at eToro Now! Benefits of Trading with our BO Indicator:More...