Currency Pair Price Quote Explaining The Pip and its Value
What is a Pip?
In forex trading, the smallest possible change of price in the currency pair price quote is called a “pip”. A pip is a standardized unit and the smallest unit of measurement in change of price quotes. The full form of pip is “Point in Percentage”. In simple language, it the single point unit to measure the price change, as how many pips did the currency pair advance or decline.
Example: in the image above you will see the price quote of 4 currency pairs. The above quoted eur/usd bid price is 1.30600. In this price quote, the 4th unit of price, i.e. 0.0001 are called a pip and the 5th unit of price i.e. 0.00001 are called a fractional pip, as so if the eur/usd price advances to 1.30610 then we will say that eur/usd increased 1 pip.
What is the value of a Pip?
The value of a single pip is different for all currencies, and it depends on various factors like what is the currency pair and what is the number of units you are trading i.e. Which lot, whether it is a standard lot (100,000 units) or a mini lot (10,000 units) or a micro lot (1,000 units)?
Example: the value of a pip for eur/usd currency pair is
Standard lot = 100,000 units x 0.0001 = $10
Mini lot = 10,000 units x 0.0001 = $1
Micro lot = 1,000 units x 0.0001 = $0.10
We do not have to worry for the value of the pip calculation as it is automatically calculated by the forex brokers, but, there is one thing, which we have to take care, and that is determining the lot size to trade as per the pip value, we will see how this is done in the lessons later.
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