PIP (Point In Percentage)




PIP

What is a PIP?

What does it represent?

- A PIP is a unit of measurement in currency movement, and stands for (Point In Percentage).
It is actually a small (unit) measure of movement or change in a currency pair (or quote).

Mind you, In Forex trading, Currencies are quoted in pairs.

For example EURUSD (EURO and US Dollar) is a currency pair. Where the first currency -in this example- EURO, is referred to as Base currency, and US Dollars a Counter (quote) currency.

-In a quotation, a PIP is the last decimal place. Meaning that; a PIP indicates fractional change in price of a currency pair.

For instance, In US$ quoted pairs, 1 PIP =  0.0001. In other words, 1/100th of 1%, or one basis point.
This is contrary to Japanese ‘YEN’ based pairs, where 1 PIP = 0.01. 
So if the EURUSD price Quote is: 1.1741, one PIP move down-ward will lead to the price being 1.1740.

NB: Unlike US$ quotes which have four decimal places, YEN based pairs use two decimals. 

For sound risk management strategies in Forex trading, it is very important that one understands PIPs and what they represent.

OJ Mwale - Sani Global

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