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Understand meaning of a Pip

In Forex, currencies are traded in fractions. The pip is the smallest unit of calculation for your trade in a currency pair.

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Most pairs have the decimal point, immediately after the first digit, with four decimal points to follow.

For example, when EUR/USD is equals to 1.1783, a single pip equals the smallest change in the fourth decimal place, 0.0001.

From the above Example:

If you buy the EUR/USD at 1.17834, which is quoted with 5 digits in all out of which 4 decimals, and sell it later at 1.18199.

The difference is +37 pips, or 0.0037. Some brokers use 4 digits instead of 5 digits also.

EUR/USD 1.27644 mean that 1 EUR is traded for 1.27644 USD (You need 1.27644 USD to buy 1 Euro).

However, in JPY currency pair, pip is calculated with only 2 decimals. If you bought the USD/JPY at 113.516 and it then went down to 113.325 where you have sold it, the difference would be -19 pips, or 0.19 loss.

The PIP differences will be used for calculation of profit/ loss.









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