# How to understand the concept of pip in forex? All you should know

In forex trading, a pip is the lowest price movement measurement. Except for the JPY, where a pip represents a movement in the second decimal place (0.0001), one pip equals a movement in the fourth decimal place (0.0001). (0.01).

The term “percentage in point” is abbreviated as “pip.” Because a Pip is equal to 1/100 of one percent, traders refer to it as “percentage in point” (1 percent of 1 percent).

## Concept of Pip in Forex

To further elucidate this notion, all we need to know is that 1 percent can also be written as 0.01, so if you wanted to know how much 1 percent of \$2.000 is, then multiply \$2.000 by 0.01, and the answer will be \$20.

Now that we’ve grasped the notion of 1%, we can calculate the outcome of 1/100 of 1%. (Same as 1 percent of 1 percent). To do so, multiply 0.01 by 0.01, yielding 0.0001, which is the exact value of one “percentage point” (also known as Basis point).

As previously stated, a pip can be either 0.0001 thetotal for most currencies or 0.01 for JPY pairs; however, certain brokers will display five decimal points for most coins and 3 for JPY pairs, which is where the “pipette” comes into play. Visit here tradefx forex trading to stay update.

## Pip Example in the Real World

Exchange rates can become uncontrollable due to a combination of hyperinflation and devaluation. It can make trading unmanageable, and the concept of a pip loses meaning and affects customers who are compelled to carry enormous quantities of currency.

The best-known historical example of this occurred in Germany’s Weimar Republic in November 1923, when the exchange rate fell from 4.2 marks per dollar before World War I to 4.2 trillion marks per dollar.

Another example is the Turkish lira, which in 2001 hit a high of 1.6 million per dollar, which many trading systems couldn’t handle. 3 The government renamed the new Turkish lira currency by removing six zeros from the exchange rate.

## Pips and Their Functions

The term “pip” means a fundamental notion in foreign exchange (forex). Bid and ask for accurate quotations to four decimal places are used to disseminate exchange quotes in forex pairs.

Pips are a unit of measurement for exchange rate movement. The lowest change for most currency pairs is one pip because most currency pairs are quoted to a maximum of four decimal places. The value of a pip can be obtained by dividing the exchange rate by 1/10,000 or 0.0001.

## How to Calculate a Pip’s Value

Because each currency has its relative value, the value of a pip must be calculated for each currency pair.

We’ll use a quote with four decimal places in the following example.

Exchange rates will be determine as a ratio to make the computations easier to understand (for example, EUR/USD at 1.2500 will be written as “1 EUR / 1.2500 USD”).

## Final Thoughts

We need to grasp the logic behind all of this now that we know what a Pip is: a modest measurement change in currency prices.

When dealing with currencies in the forex market, pips assist in quickly communicating currency price movements and assessing potential profit and losses.

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