Forex: Price Interest Points (PIPs)
In forex trading, PIPs or Price Interest Points are commonly used by forex traders to indicate profits or losses. It's not unusual for a forex trader to say "I gained 50 pips on the deal."
PIPs in Detail
A PIP is used for measuring the change of rate in a currency pair. For currency pairs that display rates as four decimal places, one pip equals 0.0001. This includes most leading currencies like USD, EUR, AUD, CAD, and GBP.
Example 1: Let's say the price of EUR/USD is 1.2399. If the price of this pair increases to 1.2400 or decreases to 1.2388, it would mean a change of 1 PIP.
The exception to this rule is currency pairs that include yen as these are displayed in two decimal places.
Example 2: USD/JPY is displayed as 115.22 with only two decimal points, so a one pip change in USD/JPY will be 115.21 or 115.23. Similarly, EUR/JPY is displayed as 142.84, and a one pip change for EUR/JPY will be 142.83 or 142.85.
The small size of PIPs ensures investors don't lose huge amounts of money.
PIPs in action
The impact of changes in PIPs depends on the amount of units purchased or sold. If the price of EUR/USD is 1.2399 and if you bought 10,000 units of this currency pair, it will cost USD 12,399. Let's say the price of this pair increased by a PIP to 1.2340, the total price will increase to USD 12,340, and you will gain USD 1 from this trade (12,340-12,399).
On any given day, the price fluctuation for most currencies is between 100 to 150 pips.
If you are into forex trading, check our Forex calculator for calculating the margin used.
Forex: Supporting guides and articles
Use our Multi-Currency Forex Margin Calculator which is updated daily to calculate the best forex rate and manipulate forex margin ratio metrics for bespoke Forex Investment results. A popular and powerful free Forex tool.
- Forex Exchange Rate: Exchange rate is the price of one currency in another currency. Exchange rate is also known as the rate of exchange
- Forex Currency Pair: When you deal in the forex market, you deal in currency pairs. You cannot buy an individual currency. Instead you buy units of currency pairs.
- Forex Leverage: Forex leverage refers to investing in the forex market on a credit basis or by using debt.
- Forex Market: Forex or the foreign exchange market is used by people for buying and selling of currencies. The forex market is also known as the currency market.
- Forex Trading: Forex trading refers to the buying and selling of currencies to take advantage of the price movements and volatility of the forex market.
- Forex Margin Call: Margin call is a call from your forex broker when your account balance goes below the maintenance margin.
- Forex Margin Ratio: Forex Trading: Margin ratio is used for expressing the forex leverage in a ratio format.
- Forex Margin Used: Margin used indicates the amount you have actually used in a Forex trade, excluding any leverage.
- Forex Maintenance Margin: Maintenance margin refers to the minimum amount you need to maintain in your forex trading account.
- Forex: Price Interest Points (PIPs): PIPs or Price Interest Points are commonly used by forex traders to indicate profits or losses.
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