What is pip in forex Market?

What is Pips

Pips are the smallest change in the value of the currency with respect to another currency of the nation. It can be illustrated as Price in Points. Whatever small unit of increment or decrement change in prices of the nation it makes you profit and loss. If you make pip that means you earn money with a hike in the currency pair and if you loose pipe that means losing your money or value of money or currency in Online Forex Trading.

If you try to understand the calculations of Pips in Currencies exchange, or you can use Pips calculator to understand the pips. Its value will be called as 0.0001 or 0.01%  likewise if we want to define the pip it will be the value of fourth decimal of a currency value change . but there is the exception in this scenario like in case of JPY  it will be second place value as this currency pair i.e 0.01.

So, in maximum cases, PIP is 0.0001 or 0.01%. Let's make this understandable with an example. Suppose, you are trading EURUSD, one of the major substantial traded pair in the Forex market. Its price is 1.3452. It moves to 1.3458. This means EURUSD has moved 6 point PIPs. Now, when we are trading with currency pairs that have USD as the quote currency or the counter currency, elaborating PIP value is easier. In this case, 1 PIP resembles $10 on the standard lot. In the above example, EURUSD exchange rate of 1.3542 means 1 Euro is equal to 1.3542 US Dollars.

On a standard lot of 100,000 units, this means 100,000 Euros are equal to 135,420 US Dollars. If this exchange rate moves by 1 PIP, it becomes 1.3543 and if you are trading a standard lot of 100,000 units, it means now you have 135,430 US Dollars or in other words, you made a gain of $10. So when USD is the quote currency or the counter currency 1 PIP is always equal to $10 on a standard lot. However, If you are trading a mini lot of 10,000 units, 1 PIP will be equal to $1. (Do the calculation for practice purpose)

The problem arises when the USD currency is base currency the Pip value will fluctuate In its value depend on the exchange rate. Suppose now you are trading USD/ Eur with a rate of 0.0855 to 1. 1 pip increases when the rate become 0.856. on a standard lot with 100,000 units $100,000 will get you to buy 85,5128 euros. 1 pip increases mean now you have 85512.

In Forex Market, If you are eager to observe you may have noticed that in this case too 1 PIP is similar to 10 units of the quote currency that is 10 Euros. But since you have the eye on the profits in terms of US Dollars, you will have to divide this by the updated exchange rate of 0.7343 to convert these Euros into US Dollar. So, in this case, 1 PIP will be $13.62.

As you will trade Forex, you will become more aware of the concept of PIPs. Most traders use a PIP value calculator. So, you only need to perceive the concept. You won't have to do the calculation most of the time!