What is a PIP?

A PIP in forex trading refers to the smallest price increment for a given currency pair.  PIP is an acronym for “Percentage In Point” and is commonly referred to when trading.  Many traders may say “I made 70 pips today” or “I will close my position once I have made 20 pips” and depending on how much you have leveraged in your trade 1 pip may be worth $1.00, $5.00 or even $100.00.  The aim of forex trading is to therefore make PIPs, keep PIPs and repeat the process.

Forex PIPs

Prices are usually quoted to the 4th decimal point when trading forex.  For example the AUD/USD currency pair may bid at 1.04126 and offered at 1.04129, meaning that the original spread is 3 pips.  Not all currency pairs are to 4 decimal places, the Japanese Yen is only 2 decimal places.

It is extremely important to understand what a PIP is and it’s impact on your trade because through your trading platform you will need to set Stop-Loss in pips, understand when to take-profit on your PIPs and how the number of PIPs in your spread will effect your profitability.