What is Pip?

What is the concept of Pip?

The word Pip is an abbreviation of "price interest point" or "point in percentage".Pip is the smallest unit of exchange value in the world financial markets, such as forex, through which it is possible to indicate the number of changes in assets and the amount of profit and loss of a trade. Therefore, the concept of pip is very important in the financial markets, because the value of this criterion is very important for the amount of risk in the trades. Without knowing the concept of pip, traders cannot determine the amount of profit and loss for their trades.

Pip position in currency pairs

Before examining the pip position in currency pairs, traders should learn about another concept called "Pipette". Each Pip is equal to 10 Pipettes. Therefore, brokers are divided into two categories: five-digit brokers and four-digit brokers.

• 4 Digit Broker

Four-digit brokers are old brokers that display the change in the exchange rate value for transactions up to 4 decimal places, i.e. a pip. (In this case, the Japanese yen is an exception).
Example: for the EURUSD currency pair, the exchange rate is 1.5362. At this displayed rate, the last number on the right side is a pip. For the USDJPY pair, when the rate is 100.12, the second digit on the right side is the pip indicator.

• 5 Digit Broker

Five-digit brokers are brokers that display price changes with up to five decimal places. In this case, the fifth decimal place is a pipette or a point, and the fourth place is a pip.
Example: for the EURUSD currency pair, the rate is 1.25698, and the decimal number 8 represents a pipette, and the number 9 represents a pip. If the rate of the USDJPY pair is 100.123, the third decimal place, i.e. the number 3, represents a pipette, and the second decimal place, the number 2, represents a pip. Thus, one pip is equal to 10 pipettes or 10 points.

The position of the pip is one ten-thousandth of the price, so usually the fourth decimal place of currency pairs is called a pip. This applies to both five-digit and four-digit brokers.For example, if the EURUSD currency pair is at a price of 0.98239, the fourth decimal place, which is the number 3, is a pip.

However, for currency pairs where one side is yen (JPY), there are two digits (four-digit brokers) or three digits (five-digit brokers) after the decimal point. For these currency pairs, the pip position is the second number after the decimal point. For example, if the USDJPY currency pair is traded at 149.765, the number 6, the second digit after the decimal point, is the pip.

Calculation of Currency pairs changes

Suppose the currency pair USDCAD is at a price of 1.38021. As mentioned earlier, the number 2 is a pip and the number 1 is pipette, and after a few hours the price will rise to 1.38521. Therefore, this currency pair has increased by 50 pips or 500 pipettes.

In another example, the USDJPY currency pair is at a price of 149.857. After some time, the price of the currency pair will fall to 148.436, which means that the price of the currency pair has decreased by 142.1 pips or 1421 pipettes.