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What is a Forex PIP? The meaning of PIP in FOREX trading

If you were new to forex trading, you surely would ask what a PIP is and how important it is in forex trading. Let us understand what a Forex PIP is, what it does with currency trading and how it can create earnings to traders.

The word PIP in forex trading stands for Percentage In Point. By definition a currency PIP is the smallest value increment that currency can make.
In the currency trading world, the word PIP is the body and soul of every Forex trader. Every time they enter a position, they are immediately paying a pip spread and the price movement happens within the entire trading day produces a difference called PIP. The only way for you to know how many pips a certain pair has in each move, all you have to do is to subtract the current price of the pair from the previous price. Example the EUR/USD currency pair with the current price of 1.0100 moves up to 1.0101, that certain pair now has one pip difference. Through this pip is where you will compute your profit and loss in trading Forex. You will just have to multiply the pip’s value with the number of pips you have gained or lost in a certain trade. However, the PIP value is a big question for every Forex newbie.

To know a PIP’s value, let us have some mathematics here and learn how to calculate pip in Forex trading. With the above-mentioned example, the formula is .0001 divided by the exchange rate (price) = pip value. Therefore, at the price or exchange rate of 1.0101, the computation will be .0001 / 1.0101 = .000010. However, we need to go back to US dollars, so we need to add another calculation, which is EUR x Exchange rate. Therefore, the calculation is .000010 x 1.0101 = .0001. If you are confused with the calculation or if you are not a big fan of mathematics, you do not have to worry in computing these figures because your Forex broker will take charge all of these computations. All you have to do is to learn and master the basic and enter your trade whenever you feel you are on the right position to enter one. What’s important in learning to compute the pip and its value is, in-order for you to have an idea on how and where did they get all those figures you see in your trading platform.

Now that you already know, what a PIP is and how important it is for you as a Forex trader, surely, you now have the idea how you can earn some bucks doing Forex trading.

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