What Is A Pip?
a pip is a measurement of the price change in a currency pair trading on the forex market. more precisely, a pip is in most cases equivalent to one one hundredth of 1%. this is true in most cases because in general currency pairs such as the us dollar euro are quoted to the forth decimal place. however, this is not true for the us dollar japanese yen currency pair which only quotes to two decimal places. let's look at an example. sally, a seasoned forex trader, is looking for a quote on the us dollar canadian dollar currency pair and sees that ? quoted at 1.1005. and she wants to buy 10,000 dollars worth of canadian dollars, which at the quoted price ? she has to pay $9,086.78 us dollars as established by the equation one over 1.1005 times $10,000. as she is watching, the pair sees a one pip increase to 1.1006, meaning the us dollar appreciated relative to the canadian dollar. she now only has to pay $9,085.95 for the 10,000 canadian dollars determined by one over 1.1006 times $10,000. this is difference of 83 cents. now 83 cents doesn't sound like a big difference. but when a position is leveraged 50 times, that single pip equals $41.50 and currency can easily move 70 pips a day. this means a $10,000 position and 50 times leverage ? she gains or losses in excess of $3,000 throughout the trading day. pips are the most basic unit of measure in forex trading, so it is important to learn how a pip's value relates to currency positions in forex trading.