What is a Forex PIP?

In this article we will explain in the simplest way possible what a Forex PIP is.

If you are a beginner and just starting Forex trading, this is one of the terms you need to know.

What is a PIP?

A PIP on Forex is the unit of measurement used to indicate a change in the value of a currency pair. That is, currency pairs move in small increments, and the minimum value of these changes is measured in PIPs.

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For most currency pairs, one pip corresponds to a single-digit price change to the fourth decimal place.

For example, in the EUR/USD currency pair with a price of $1.2041, a change to the fourth decimal place would represent a pip movement. If the EUR/USD cross moves to $1.2242, this would be a one pip increase.

The above movement reflects that the USD is weakening against the EUR as more USD are required to buy a single EUR.

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However, for JPY crosses, it is a change in the second decimal place.

Let’s take the USD/JPY currency pair as an example and imagine that its current rate is 108.42 yen. In this case, a movement in the second decimal place would represent a pip movement.

If it fell to 108.71, the rate would have fallen by one pip, which would mean that the JPY would have gained against the USD. This is because it would now cost less JPY to buy a single USD.

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What is a pipette?

A pipette is another unit of measurement that determines the value of a currency pair. But instead of the fourth decimal place (or the second decimal place for JPY crosses), pipettes are a movement in the fifth decimal place. For JPY crosses, it is a movement to the third decimal place.

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For example, if the price of the USD/CAD currency pair changes from $1.21056 to $1.21052, there has been a positive increase of four pipettes.

SUMMARY

A pip is the minimum value by which a currency pair can move.

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Most pairs have 4 decimal places and each change in the last decimal place is a pip.

Crosses with the yen have 2 decimal places, and each change in the last decimal place is a pip.

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