Introduction To Forex Pips

The most important thing a new Forex trader must do is to lean how to understand the value of a PIP in a paired currency. A PIP is the acronym for Percentage In Point, or Price Interest Point which is the smallest measure of value in any paired currency in Forex.

Currency pairs are quoted accurately to the fourth decimal place because Forex transactions are mostly involves large sums, and Forex spreads are the exact opposite. This defines the smallest movement of a paired currency and is called a Pip. An example would be: if the USD/EUR moves from 1.2345 to 1.2346, then the Pip would be 1. If it changes from 1.2345 to 1.2305, the change in Pip would be 40 Pips. On the currency market, there are the 6 widely-traded called the majors that is made up of the following:

* EUR/USD, also called the ‘EURO” * GBP/USD, also called the “CABLE” * USD/CHF, also called the “SWISSIE” * USD/JPY, also called the “NINJA” * USD/CAD, also called the “LOONIE”, or “BEAVER” * AUD/USD, also called the “AUSSIE”

Of the 6 majors, the EUR/USD is the most widely traded currency paired, with an average of 100 Pips per day.

Also, profits and losses are measured in Pips, with the exception of the USD/JPY, since it is quoted at the second decimal place due to having a cent or of a hundredth in some major currencies. The yen’s Pip value is .01, while other majors are placed at .0001.

If you trade the currency pair of USD/JPY at 110.95 and moves to 111.0, it gained 5 Pips. With a quote of 77.48 that changed to 77.53 would mean a 5 Pip increase. If it were the USD/CAD pair while at 1.0234, then changes to 1.0224, 10 Pips would have been lost. Trading with the AUD/USD with an exchange quote of 1.9876, the Pip equivalent is .0001, as it set by market makers at 4 decimal places.

Basically, when you hear someone say, “30 Pips”, it denotes thirty units of value in trading. Individual currencies are not similarly quoted in terms of Pips, so it’s best to review all the currencies you encounter during your trading. Dealing with large sums might seem daunting at times, but will get easier gradually as you begin to get acquainted with Forex trading as time passes.

In order not to get confused with the quotes, most currency paired with the USD are placed at 4 decimal places or .0001, while the yen is place at 2 decimal places or .01. Keeping this information on Forex Pips at all times during your trading can greatly help.