Forex Trading Blog | A “Pip” in Forex Trading?
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Back to the basics. A “pip” in Forex Trading?
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This forex trading blog post is going to talk about what a pip is in regards to forex trading.
When talking about the currency exchange markets
(Forex), a “pip” is one of the most commonly used terms in Forex trading so it is imperative that you know what it is. A pip stands for “percentage in point”. To put it simply, it is the smallest increment by which a price can change. When prices are quoted in the Forex market, it is taken out to the 4th decimal (excluding JPY). One example is if the EUR/USD moves from 1.2345 to 1.2346, that is regarded one pip. Note when the digit places to the right of the decimal changes from 5 to 6. To help better yourself as a trader, you must not only know what a pip is, but how to calculate its value. The way you do this is dividing .0001 by the given exchange rate. In Forex, most of the time you deal with 4 decimal places, however when dealing with Japan (JPY) it is 2 decimals. To calculate the pip value when JPY is present, you divide .01 by the exchange rate. This is also key in understanding the bid/ask spread in the transaction, as it is calculated by pips. The spread would be considered the “mark up” of Forex. Forex brokers mark the spread up in pips. The currency exchange market tends to be a very technical form of trading, and a pip is a buzzword that is commonly used. Hopefully our forex trading blog has helped our readers begin to wrap their head around the pip idea.