What is a pip in forex trading?

Fat Finger

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In forex, a pip is a measure of price movement. Thus, if one exchange rate moves 100 pips and another 300 pips in one day, the second exchange rate will have displayed a bigger movement.

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The word pip is an abbreviation for percentage in point. A pip is usually equal to 0.0001 in exchange rates of the USD and many other pairs. Many brokers also show you parts of a pip when trading, i.e., a fifth decimal number 0.00011.

Usually, traders measure their trading performance by calculating the number of pips they managed to catch in a single day, week, or month. Many signal providers promise to deliver a minimum number of pips per month, for example, 1000 pips per month.

Using pips is helpful in that it helps benchmark trading performance. For example, if you know a trader that catches at least 100 pips per week, he is doing better than a trader who catches only 20 pips after calculating lost pips. This helps compare traders’ performance despite the difference in their account sizes.

The amount of money you make if you managed to catch ten pips, for example, varies depending on the size of your trade. If you are trading one standard lot of EURUSD for example, then every pip you catch will give you $10 in profit, and thus 10 pips will help you earn $100. The value of 1 pip when trading 1 standard lot on other instruments can vary based on your account currency and the exchange rate in question.
 
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