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6. What is Pips?

6. What is Pips?

Pip is an acronym for "percentage in point" or "price interest point." A pip is the smallest price move that an exchange rate can make based on forex market convention. Most currency pairs are priced out to four decimal places and the pip change is the last (fourth) decimal point. A pip is thus equivalent to 1/100 of 1% or one basis point.

For example, the smallest move the USD/JPY currency pair can make is $0.0001 or one basis point.

Traders often use pips to reference profits or losses.

For example, a forex trader may say “I made 90 pips on the trade!”

This means that the trader profited by 90 pips. The actual cash amount this represents depends on the pip value.

Even though a pip is a very small unit of measurement, forex traders are usually highly leveraged which means even a single pip move in price can mean huge profit or loss.

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