What is a PIP?

In finance, specifically in foreign exchange markets, a percentage in point or price interest point (pip) is a unit of change in an exchange rate of a currency pair.

The major currencies (except the Japanese yen) are traditionally priced to four decimal places, and a pip is one unit of the fourth decimal point: for dollar currencies this is to 1/100th of a cent.  For the yen, a pip is one unit of the second decimal point, because the yen is much closer in value to one-hundredth of other major currencies.[1]

A pip is sometimes confused with the smallest unit of change in a quote, i.e. the tick size.  Currency pairs are often quoted to four decimal places, but the tick size in a given market may be, for example, 5 pips or 1/2 pip.

Watch this quick video to get a visual of what a pip is.

 

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