Have you just started getting interested in the Forex market? Then you know that you have a lot to learn. Many terms may be confusing for beginners and may confuse and push them away from entering the market.
Don’t worry, we’re here to help. In this article, we’re going to talk about one of the most basic Forex terms: the pip.
The pip is the smallest price change that can occur in a currency pair. The term is an acronym for “percentage in point” and is used to measure the change in value between two currencies.
But that’s just the surface. Let’s explore the Pip definition in Forex, in more detail.
What Pip Means for Forex Trading
The pip is important because it’s the smallest amount by which a currency pair can change in price. For example, if the EUR/USD moves from 1.10 to 1.11, that’s a one-pip move.
Pip values vary depending on the currency pair being traded and the size of the trade. The most common pip value is $0.10, but it can be higher or lower depending on the pair.
For Forex traders, pips are essential because they represent the potential profits or losses on a trade. A trader who buys a currency pair at 1.11 and sells it at 1.12 would have made a profit of one pip ($0.01). Conversely, a trader who buys a currency pair at 1.11 and sells it at 1.10 would have made a loss of one pip ($0.01).
Understanding Pip in Forex
When you’re trading Forex, you’re always dealing with currencies. Let’s say you want to buy euros with US dollars. The price of the euro is 1.2500 US dollars. This means that you need to spend 1.2500 US dollars to get one euro.
But what happens if the price of the euro changes? Let’s say the price of the euro goes up to 1.2600 US dollars. This means that you now need to spend 1.2600 US dollars to get one euro.
The difference between these two prices is called the pip value. In this example, the pip value would be 0.0600 US dollars (1.2600-1.2500).
Pip values can be different for each currency pair. They’re usually expressed in terms of the fourth decimal place (0.0001). So, in the example above, the pip value would be 0.06 US dollars.
Most Forex brokers allow you to trade mini and micro-lots. A mini lot is 10,000 units of currency. A micro lot is 1,000 units of currency. This means that the pip value for a mini lot would be $0.60 (0.06*10,000) and the pip value for a micro lot would be $0.06 (0.06*1,000).
Closing Thoughts
Now that we’ve answered the question: “What is a Pip in Forex?” we hope that you have a better understanding of this basic Forex term. Remember, if you’re ever confused about any Forex terminology, our team is always here to help!
