PIP or Price Interest Point is the unit of measurement used in forex markets which represent the price movement between two currencies.
A PIP can be a different decimal depending on the currency pair you are trading, however it is usually equal to the fourth figure after the decimal point with major currency pairs. A 0.00010 movement in the price of GBPUSD pair is considered a one pip move.
- Ex. If EURUSD price moves from 1.32485 to 1.132495 that means the price moved 1 pip.
This applies to all five decimal currency pairs.
On currency pairs that have three decimal values a pip will be the second decimal value of the quote, ex AUDJPY 72.985
On a two decimal value pair a pip will be the first decimal value
When a currency pair is quoted in:
- 5 decimal places, a pip is thought of in 0.00010 amounts
- 3 decimal places, a pip is thought of in 0.010 amounts
- 2 decimal places, a pip is thought of in 0.10 amounts
The value of each PIP will depend on the position size you are trading, to make it simpler, you can think of the PIP value being 10 units of the terms currency for every 100,000 units of currency you are trading.
For instance if you trade 1.0 lots of EURUSD everytime the price moves 0.00010 will be shown as 10 USD, as the pip value is always calculated in the quote currency which is always the second currency on the pair ex EURUSD. Similarly, when trading Gold (XAU/USD), the pricing is in USD (U.S. Dollars).
For indices, the quoted currency is in the host country’s established currency. For example, GER30 is traded in Europe which means that the point value is given in EUR (Euro); US500 is traded in the US, so the point value will be in US Dollars.