Know more about Forex Pip (Percentage in point)

The smallest change in the price is called a pip. Because most currencies are traded with a value that includes 4 decimal places, the one to take note of is the last point. Though many intermediate investors may come across the word often, they still do not know much about what it is. If you’re among them, you should take the time to get familiarized. To help you out, here’s what you need to know about pip.

The Acronym

Pip stands for percentage in point. It was shortened so those exchanging currencies won’t have a hard time. As it is also a bit in a unit change, it is often confused with other terms in the forex market including points, lots, and especially tick.

Though a pip is considered to be equal a tick, it is an increment with the least possible change. If you compare the two, you could tell that a tick amounts to 5 more raises, in other trading industries.

Two Factors that Affect the Monetary Value of Pips

1. Currency pairs

Currency pairs change the value of a pip depending on their equivalents on the market. Because the exchange rates are always different, the particular currencies are the ones that could determine the amount of pip.

2. Leverage

Defined as the spent money that was borrowed as an investment capital, leverage affects the pip value because the more of it that you have, the riskier it is for you. Having it increases volatility in your position. If you lose just a few pips, you may lose everything in your account.

Example

To get the value of a pip, you must note the original prices and what follows because it is the difference in these. So, if the currency pair, USD/JPY is trading at 1.00001 and a price change is determined as it moved from that amount to either 1.0002 or 1, it would be referred to as an increase or decrease.

Fractional Pip (Pipette)

A fractional pip is a 10^th of the smallest unit change. For example, if a pip is valued at $50, the fractional pip would be $5. Moreover, it is a modern pricing feature that allows any investor to keep track of the movement of the prices and provides him assistance for better decisions when it comes to trading. Though a pip is little enough, a pipette can influence a clear prediction because it allows him to be informed of even the slightest detail in his exchange.

A pip may be a little thing but you have to learn what it is. Because forex is different from regular markets where some trades are guaranteed with clearing houses to back them up, you have to know what you’re doing. Otherwise, you may end up losing money just because you failed to understand a simple term.

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