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Definition of pip needs clarification

Discussion in 'Beginners Bootcamp' started by elkhorn, Dec 21, 2011.

  1. elkhorn

    elkhorn Private

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    What is a pip?

    Sounds like a simple question with simple answer, but have found it is not. Some say the smallest change in price, but that means confusion between 4 digit and 5 digit brokers. BTW pip is not defined in our glossary and searches revealed nothing.

    This comes up time and time again when dealing with programed Expert Advisers (EAs), where an input is required in pips (ie, stop loss, take profit, etc.). Some gurus explicitly say, "if we say 3 pips put in 30 if you have 5 digit broker". Some say, after inquiry, "if we say 3 pips put in 3, since we work from the left in the price quote, and 5 or 4 digit broker makes no difference". Others say nothing.

    I suggested once, "Do you mean 30 points in a 5 digit broker is equal to 3 pips?". The response was , "Are you talking about stocks?".

    Needless to say putting in 3 when 30 is required or 30 when 3 is the proper value is probably a disaster.
    Fairly new to Forex, so what is the answer or better what is a solution. Some kind of standard is needed. Who better to set that standard/convention than FPA?
     
  2. Pharaoh

    Pharaoh Colonel

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    I did most of the glossary definitions, but deliberately skipped pip. The reason was that the glossary links into forums posts that use the words and pip is used so commonly.

    Sive covered pips and 1/10 pips here - http://www.forexpeacearmy.com/forex...-chapter-5-part-iii-fractions-quote-rate.html

    A pip is the same as a point with 4 digit brokers. It takes 10 points to equal a full pip in 5 digit brokers.

    A well written EA should be able to tell if a broker is 4 or 5 digit. Its documentation should cover any possible issues. Overall, this sort of thing is another reason that EAs and any other trading system needs to be carefully tested on a demo before going live. You don't want that planned 30 pip stop loss turning into 3 pips or 300 pips.
     

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