Pip (Percentage in Point)

A point in percentage or pip is a standardized unit of measure in an exchange rate. In forex, the value of the exchange of a currency is represented in pips. 

Major currencies are priced to four decimal points, excluding the Japanese yen, which is priced to two decimal points only.

• Most currency pairs, one pip = 0.0001
• Currency paired with Japanese Yen, one pip = 0.01

 

Most currency pairs, such as the USD/EUR, trade-in 4 decimal places ( 1 pip = 0.0001) and trade in terminals in 5 decimal places ( 1 technical pip = 0.00001). Spreads, order distances, and other parameters are normally quoted in 4 decimals in company websites; however, in trading platforms, they are quoted in 5 decimals.

Most currency pairs trade in 4 decimal places except currencies paired with the Japanese Yen, where the pip is 0.01, and the technical pip is 0.001.

 

For example, the currency pair GBP/USD. Assume that its buy price is 1.68551. 

If it changes from 1.68551 to 1.68552, that means it increased by 1 technical pip. If the price changes from 1.68551 to 1.68550, that means it decreased by 1 technical pip.

In the currency pair USD/JPY, an increase of 1 usual pip means that from 125.87, it rose to 125.88. 

To manage your risks, you must learn the pip value of each position.

 

Calculating Pip Value

The value of a pip depends on these three factors: (1) quoted currency, (2) volume of the trade, and (3) exchange rate.

These factors significantly affect trade as even a change of 1 pip can profoundly impact the value of the open position.

 

To calculate the value of one pip, the following formula is used:

The value of 1 pip = (Pip in decimal places * Trade Volume)

 

Trading position volume	Calculation	1 PIP_VALUE
100,000 EUR	100,000 * 0.0001	10 USD
10,000 EUR	10,000 * 0.0001	1 USD
1,000 EUR	1,000 * 0.0001	0.1 USD
100 EUR	100 * 0.0001	0.01 USD

Example A: 1 pip volume in EUR/USD is equal to 0.0001

 

 Example B: 1 pip volume in USD/JPY is equal to 0.01

Trading position volume	Calculation	1 PIP_VALUE
100,000 USD	100,000 * 0.01	1000 JPY
10,000 USD	10,000 * 0.01	100 JPY
1,000 USD	1,000 * 0.01	10 JPY
100 USD	100 * 0.01	1 JPY