What is a Pip in Forex Trading?

Pip is the measurement unit of the forex exchange rate and the minimum possible exchange rate of a currency pair quotation. It stands for percentage in point or price interest point (pip). The major currencies pairs (except the Japanese yen) consist of US dollar are usually priced to five decimal places – where a pip is the fourth decimal place e.g. 1.16048/1.16078. And for the Japanese yen – pip is the second decimal place e.g. EUP/JPY=124.663/124.678.

Understand Pip in Forex Trading

In the above EUR/USD quotation, we can see bid and ask price in five decimal points, i.e. 1.16048/1.16078, while in EUR/JPY we can see bid and ask prices in three decimal places, e.g. 124.663/124.678.

In major currency pairs consists of US dollar, the fifth decimal digit, and the pairs consist of Japanese yen the third decimal digit is known as point or pipette.

Currency Pair Pip Pipette or Point
EURUSD 1.16048/1.16078 1.16048/1.16078
EURJPY 124.663/124.678 124.663/124.678

Forex brokers charges in the form of pips or point which is known as the forex spread.

How to calculate pips profit?

For example, you opened EURUSD sell position one standard Lot (100,000 units) at 1.16048 and close it at 1.16000. The real profit or loss that you have gained will be equal to the position size multiplied by the pips increased or decreased. So, the difference between the opening and closing price is, and we need to calculate pip movement.

The profit will calculate as under:

1.16048-1.16000 = 0.00048 Pips (profit in pips)

Your profit is equal to 100,000*0.00048 = $48