Introduction To Forex Pips PDF Print E-mail
Written by Bart Icles   
Saturday, 08 August 2009 14:32
In Forex trading, a Pip or Percentage In Point or Price Interest Point, is the smallest change in price of a given exchange rate. New traders to the market should have a thorough understanding of the concept as they will encounter this term all the time when doing currency trading.
by BartIcles


In Forex trading, a Pip or Percentage In Point or Price Interest Point, is the smallest change in price of a given exchange rate. New traders to the market should have a thorough understanding of the concept as they will encounter this term all the time when doing currency trading.

Currency pairs are quoted accurately to the fourth decimal place because Forex transactions are mostly involves large sums, and Forex spreads are the exact opposite. This defines the smallest movement of a paired currency and is called a Pip. An example would be: if the USD/EUR moves from 1.2345 to 1.2346, then the Pip would be 1. If it changes from 1.2345 to 1.2305, the change in Pip would be 40 Pips. On the currency market, there are the 6 widely-traded called the majors that is made up of the following:

* EUR/USD, also called the 'EURO" * GBP/USD, also called the "CABLE" * USD/CHF, also called the "SWISSIE" * USD/JPY, also called the "NINJA" * USD/CAD, also called the "LOONIE", or "BEAVER" * AUD/USD, also called the "AUSSIE"

The EUR/USD is the most traded major by an average of 100 Pips a day.

Profits and losses in Forex use the Pip as an accurate means of measurement, but the Pip for a USD/JPY pair has a different value compared to the Pip for USD/CAD, as it is set to the 2nd decimal place since it's value is smaller comparable to a cent/hundredth of other major currencies.

If the price quote for the currency pair of USD/JPY is placed at 110.95, and changes to 111.0, then it has gained 5 Pips. In other currency pairs, such as the USD/CAD, a quote of 1.0234 moves to 1.0224, then it lost 10 Pips. A USD/JPY quote of 77.48 changed to 77.53, the Pip would be at 5 Pips increase. Trading with the AUD/USD with an exchange quote of 1.9876, the Pip equivalent is .0001.

So, in Forex trading "30 Pips" would mean thirty units of value in trading. Since individual currencies have different quotes in terms of Pips, it's important to take note of such differences so as not to get confused in your trading. Dealing with large sums might seem daunting at times, but will get easier gradually as you begin to get acquainted with Forex trading as time passes.

The important thing to remember is that most currencies are placed at the fourth decimal place, such as those paired with the USD, or .0001, except the Yen. If you always keep in mind what a Forex Pip is, as also that each respective currency pair has a different value to it, you'll do well in your everyday trading.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Forex pip values start with a desire to learn and a drive to become a great trader. Even 4x made simple takes dedication and a good teacher. But once you learn how to trade and do so successfully your life will change and you have options and financial resources you never had before.