Trading Basics | Learn What is a PIP
👉What is a Pip?
The unit of measurement to express the change in value between two currencies is called a “pip.”
If EUR/USD moves from 1.1050 to 1.1051, that .0001 USD rise in value is ONE PIP.
A pip is usually the last decimal place of a price quote.
Most pairs go out to 4 decimal places, but there are some exceptions like Japanese yen pairs (they go out to two decimal places).
For example, for EUR/USD, it is 0.0001, and for USD/JPY, it is 0.01.
👉What is a Pipette?
There are forex brokers that quote currency pairs beyond the standard “4 and 2” decimal places to “5 and 3” decimal places.
They are quoting FRACTIONAL PIPS, also called “points” or “pipettes” which equal a 10th of a pip.
👉How to Calculate Pip Value:
👉The value of pip depends on the following three factors:
✔️The quoted currency
✔️The volume of the trade
✔️And the exchange rate
Based on these factors the fluctuation of even a single pip can have a significant impact on the value of the open position.
The value of 1 pip is calculated by the following formula:
The value of 1 pip = (Pip in decimal places * Trade Volume)
👉Example:
1 pip volume in EUR/USD is equal to 0.0001
Then 1 PIP VALUE equals:
100,000 EUR—> 100,000*0.0001= 10 USD
10,000 EUR—> 10,000*0.0001= 1 USD
1,000 EUR—> 1,000*0.0001= 0.1 USD
100 EUR—> 100*0.0001= 0.01 USD
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