Understanding Forex Pips: A Beginner's Guide

The Forex pip is something that you will need to be aware of if you are going to trade the market. Here are the basics of the Forex pip and what it means.

Forex Pip

In the world of Forex trading, you are going to be trading multiple currencies. Whenever you trade one currency against the next, you need a system to measure the fluctuations of the rate between the two currencies. Instead of using dollars, or some other measurement, the Forex community uses pips. The pip is the smallest measurement of change between the values of two different currencies.

Determining Change

When you are looking at a Forex transaction, you will be able to determine how many pips were won or lost. Let's say that a trader opened a position at a price of 1.4305 and closed it out at 1.4309. In order to determine the pips, you would subtract 1.4305 from 1.4309 and get .004. In this example, the trader would have made 4 pips. With brokers that utilize four decimal quotes, the pip value is going to be the last number in the value. With brokers that utilize five decimal quotes, the pip value will be the fourth number after the decimal.