What is A PIP on the Forex Market?

Definition of a PIP

PIP is an acronym for percentage in point.  This percentage in point represents the smallest value of measurement for currencies on the forex market.  Unlike dollars and cents which are calculated up to two decimal places, the currencies on the forex market are calculated up to the fourth decimal point.  The smallest move that a PIP can have is .0001, which represents 1/100th or commonly referred to as 1 basis point.  The one exception to the fourth decimal point is the Japanese Yen, which is only calculated up to two decimal places.

How are PIPs Calculated

PIPs are calculated in terms of currency pairs.  Unlike stocks or futures which trade solely based on their own evaluation, the forex market compares the value of two currencies to arrive at a bid and ask price, which is reflected in PIPs.  Each currency pair has a base currency which is listed first in the currency pair.  So, for example, in the USD/CHF currency pair, the US Dollar is the base currency.  This means that as the price of the US Dollar rises or falls, relative to the Swiss Franc, this will cause a price move in the PIP values for this currency pair.  If the USD/CHF is worth 1.15351, then that means that $1 US Dollar is worth 1.1531 Swiss Franc.  So, if you invested US $100,000 into the USD/CHF, it is worth $115,351 Swiss Franc.  In the event the USD/CHF moves 10 basis points, it would represent a PIP move from 1.15351 to 1.15361 which would translate into a gain of $100 Swiss Franc.

 

Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

Tradingsim.com
Day Trading Simulator

Tradingsim.com provides the ability to simulate day trading 24 hours a day from anywhere in the world. TradingSim provides tick by tick data for...

Send this article to a friend.

Enter multiple addresses on separate lines or separate them with commas.