All About Pips
One of the most common terms you’ll hear as a forex trader is the term “pip.” However, sometimes we might use and understand the word with out being able to define it. Now, you could go to lunch with your trading buddy and discuss pips, trend, and breakouts…but what happens when you’re asked to explain what pip stands for?
Don’t worry. We’ve got your back! Read below to find out all about pips.
What is a pip?
“Pip” has been said to be short for “Price Interest Point.” Either way, it is the smallest commonly quoted unit in the exchange rate of a currency pair.
That statement was packed with a lot of forex jargon. Here’s an example that might help…
Let’s say you’re wanting to know whether it’s a good day for a picnic, so you pull out your phone and check the weather. You watch the forcast closely as the expected number of degrees for the day slowly drop – indicating today might not be the day for that picnic. The degrees are a unit to measure the change in temperature. A pip works like a little bit like a degree; just like how degrees are a unit to measure a change in temperature, pips are a unit to measure a change in exchange rate.
A pip is the smallest unit of measurement in an exchange rate; how do you see it in your trading?
Well, for most currency pairs, like the EUR/USD, a pip will be the fourth decimal point; for all pairs with the JPY as the quote currency, or the second listed currency, the pip is the second decimal point.
A pip is either 1/10,000 or 1/100…what’s that worth to you?
The worth of a pip changes depending on the lot size you’re trading, the more money you put into the trade the more money each pip will symbolize.
When you’re learning how to trade, being able to make 10-20 pips a day means that you’re doing great! By slowly increasing the lot size as you perfect and become confident in your trading system, you’ll be able to increase your profits (the great power of zero!).
For Apiary traders, it never hurts to review the basics. View our fun module that introduces pips.
Please, share with us below any questions you have about using or what a pip is.
About Apiary Fund
Located in Orem, Utah, Apiary Fund is a crowd sourced fund management company that develops successful investors and gives them the opportunity to create flexible income by managing a small portfolio of company money. Through technology and education, Apiary empowers traders to work toward their path to success in the financial markets.