What is a Forex PIP
The word “pip” is an acronym for “price interest point” or “point in percentage.” A pip measures the amount of fluctuation in the exchange rate for a currency pair. For currency pairs displayed with four decimal places, one pip is equal to 0.0001.
What is a Forex PIP Value?
A rate change of one Forex pip may be related to the value change of a position in a currency market. Currency is typically traded in lot size of 100,000units of the base currency. A trading position of one lot that experiences a rate change of 1 pip therefore changes in value by 10 units of the quoted currency.
If the currency price we quoted earlier changed from 1.1200 to 1.1205, this would be a change of five pips. To get the value of one Forex pip in a currency pair, an investor has to divide one Forex pip in decimal form (i.e. 0.0001) by the current exchange rate, and then multiply it by the notional amount of the trade.
Forex Pip Calculation Example
If the FX currency pair of the Euro and the U.S. Dollar (EUR/USD) is trading at an exchange rate of 1.3000 (1 EUR = 1.3 USD) and the rate changes to 1.3010, the price ratio increases by 10 pips.
What is a Forex PIP conclucsion
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