Pip Digits

Pip stands for “percentage in point” or “price interest point.” In forex and other financial markets, a pip is defined as the smallest price move. It is calculated from the fourth digit following the decimal point. This means that a pip is the same as 1/100 of 1% or one basis point. For instance, when a trader says they have 10 pips on a trade, it means that they made a profit of 10 pips on that trade. Converting the pip amount to money depends on the value of the forex pips. Pips are very important in forex trading as most brokers highlight their spread in pips.

In addition, traders often use pips instead of the spread to cite the difference between the bid and ask prices. Traders also use it to show how much profit or loss they can potentially make from a trade.

In the forex market, most currency pairs are quoted with 4 decimal places. For example, a trader who purchases the EUR/GBP pair will earn profits if the euro increases in value relative to the British pound.
If a trader buys the euro for 1.2305 and closes the trade at 1.2365, the profit on the trade would be 1.2365 – 1.2305 = 60 pips. However, keep in mind that the Japanese yen (JPY) is the exception as it is quoted in only 2 decimal places. At PanaceaCapitals, we will express the spread charged in the market for a currency pair in terms of pips.