I've been reading about the new currency exchange program Pip Android and I began wondering if the newbie traders know what are those pips anyway. Currency trading pips are an important part of forex trading that any trader must grasp. They are the measure of movements in prices, and thus of profit and loss. Brokers customarily interpret pips into bucks and cents for you, or into the currency that your account is held in, if it isn't US dollars. When comparing two trades with different position sizes it's the profit or loss in pips that tells you more than the profit in dollars.
PIP means percentage in point. It is utilized as a measure of change in cost. Spread is also measured in pips. The pip is the littlest part of the measured cost of a quoted currency.
In practice, most currencies are quoted to 4 decimal places, e.g. 1.2315. In this situation one pip is 0.0001 units of the quote currency. So if that price changes to 1.2316, the price has increased by one pip.
The japanese yen is the only one of the major currencies that is low enough in value to be normally quoted to two decimal places. So when the yen is the quote currency, one pip is 0.01 yen.
Some brokers are now beginning to quote the other major currencies to five decimal places. Rationally this should mean that one pip would be 0.00001 currency units, but the potential there for misunderstanding is massive, if a pip would be worth ten times as much with some brokers than with others. So it seems likely the pip will stay at 0.0001 units for most currencies.
Most traders record their profit and loss in currency trading pips as well as in money. This enables easy comparison of one trade with another so that you can guage a system. It also suggests that traders can discuss their results in a currency exchange forum without revealing the dimensions of their account or their profits in dollars and cents.
If a trader tells you that they made one hundred pips profit, you do not learn anything about their money situation. If they are trading a pair like EUR/USD where the buck is the quote currency, 100 pips profit would be $1,000 on a standard lot of $100,000 but only $10 on a $1,000 micro lot. To understand the size of one pip in dollars in this position multiply 0.0001 by the lot size.
To work out profit or loss from pips where the dollar is the quote currency, you just need to understand that one pip is $0.0001 x lot size. If you have another currency as the quote currency, the pip is naturally in that currency, and you can multiply by the exchange rate to understand the pip worth in greenbacks.
All this may appear rather baffling at first sight but anyone who starts trading will pretty soon understand what a pip means in practice. Forex trading pips are a helpful tool for measuring and recording movements in prices in foreign exchange trading.
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