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- What is a PIP?
What is a PIP?
When you first hear it, it reminds you of a funny sound, doesn’t it? “PIP!” In the trading world, however, weirdly enough, it doesn’t only mean something, but it’s also pretty important!
Specifically, pip stands for:
- Percentage in point
- Point in percentage
- Price interest point
Not clear enough eh?
Well then, in simpler words, a pip is a measure of the exchange rate’s movements, meaning it measures the change/difference of the exchange rate! In other words, it measures the up and down movements of the price. Interestingly, traders often measure their profit and loss in pips. So, you might hear a trader sometimes be like “I made 50 pips!” or something like that.
Now, let’s have a look at a better example of what a pip actually is.
So, the exchange rate of the EUR/USD is quoted in 5 decimal digits.
But let’s say that the exchange rate moved from 1.20100 to 1.20190.
This means that it gained 9 pips!
In simple words? the pip corresponds to the 4th digit after the decimal point, and this is the case with almost all currency pairs. The exception is the Japanese yen, which is measured in 3 decimal places.
For example, if the exchange rate of the USD/JPY is 115.000, and it moves to 115.080, then it simply gained 8 pips. In this case, the pip here corresponds to the second digit after the decimal point.
Fun fact, this is also true for the currency pairs that involve the Hungarian Forint!
You now know what the pip is and how it’s measured!
