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A ‘PIP’ (an abbreviation of Point In Percentage) is the smallest movement that the price of a currency pair can move.

Most currency pairs are quoted to the fourth digit after the decimal point, the movement of this digit is quoted in PIPs.

Let’s look at some examples, below.

5 pip gain

EXAMPLE 1

Below, is an example price of what GBP:USD might look like:

GBP:USD – 1.3008

The value of the fourth digit after the decimal point is an 8This value is constantly changing

If the price goes up by 1 PIP then the new price will be:

GBP:USD – 1.3009

As the price has gone up by 1 PIP, the new value of the fourth digit after the decimal point has increased from an 8 to a 9.

 

EXAMPLE 2

Below, is an example price of what GBP:USD might look like:

GBP:USD – 1.3008

If the price goes down by 1 PIP then the new price will be:

GBP:USD – 1.3007

 

As the price has gone down by 1 PIP, the new value of the fourth digit after the decimal point has decreased from an 8 to a 7.

 

 

ALL currencies quoted along with the Japanese Yen (JPY) are quoted only to the second digit after the decimal point. Therefore the movement of the second digit after the decimal point, is quoted in PIPs.

Let’s have a look at some examples, below.

JPY 1 PIP GAIN

 

EXAMPLE 3

Below, is an example price of what GBP:JPY might look like:

GBP:JPY – 141.75

The value of the second digit after the decimal point is a 5This value is constantly changing

If the price goes up by 1 PIP then the new price will be:

GBP:JPY – 141.76

 

As the price has gone up by 1 PIP, the new value of the second digit after the decimal point has increased from a 5 to a 6.

 

 

BONUS:

On the MT4 trading platform, the prices you receive go out an extra digit. Therefore prices are quoted to the fifth digit after the decimal point (third digit if related to JPY).

The movement of this digit is quoted in ‘fractional PIPs. The movement of 1 fraction PIP is equivalent to the movement of 1/10th of a PIP.

The reason that fractional PIP prices are offered, is to allow brokers to offer lower prices.

pip fraction

LESSON SUMMARY:

– A ‘PIP’ is the smallest movement that the price of a currency pair can move.

– Most currency pairs are quoted to the fourth digit after the decimal point.

– ALL currencies quoted along with the Japanese Yen (JPY) are quoted only to the second digit after the decimal point.

– On the MT4 trading platform, the prices you receive go out an extra digit. Therefore prices are quoted to the fifth digit after the decimal point (third digit if related to JPY). The movement of this digit is quoted in ‘fractional PIPs’.

– The movement of 1 fraction PIP is equivalent to the movement of 1/10th of a PIP.

Lesson tags: free forex course
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