What is a PIP value?
A “PIP” stands for “percentage in point” and represents the smallest price movement that a currency exchange rate can make. The pip value is the monetary amount associated with a pip movement in the exchange rate of a currency pair.
It varies depending on the currency pair being traded and the size of the position. Understanding the pip value is crucial for calculating potential profits or losses in forex trading. For most currency pairs, one pip is equal to 0.0001 of the exchange rate, but for currency pairs involving the Japanese yen, it is 0.01.
Example of a PIP value
Let’s assume a trader is dealing with the EUR/USD currency pair and the exchange rate moves from 1.2500 to 1.2501, that’s a one pip movement. Now, if the trader has a position size of 1 standard lot (100,000 units) of EUR/USD, then for each pip movement, the value would be $10.
This means that for every pip the price moves, the trader gains or loses $10, depending on the direction of the movement.