Have you ever hear of the term Pips while trading, or are you looking to get into currency trading but still stuck this term? No need to worry anymore as we will have a look at the definition of the term in details. For a starter, the term PIP is basically a short term or an abbreviation for “Price Interest Point”.
A pip is a number value used in Forex markets to measure the amount of change in exchange rate for a currency pair. Currencies are mostly displayed in four decimal number format, a pip is equal to 0.0001 for major currencies but as for Yen currency, it is based on two decimal number format, a yen pip will look like 0.01.
In an example, if you were looking to buy a product from the United States and you see that the USD have moved from 0.0001 to 0.0003, you must know that a two pip value have spread for that particular currency pair on the base of a US dollars. Basically one pip is the smallest price change that an exchange rate can make.
Some brokers nowadays offer a fractional pips to provide better understanding and an extra digit of precision when quoting exchange rates, they can quote for a pip value of five and or three decimal number format. This type of “fractional pips” are often referred to as “Pipette” in the Forex market. A pip is often higher valued above a pipette, a fractional pip is equivalent to 1/10 of a pip.
A pip value will always be converted to the account’s currency when trading for another currency.