What is Pip? Pip, short for Percentage in Points, is an important concept in Forex trading. It is the unit of measurement used for the change of a currency pair’s exchange rate. Pips are also used to refer to the smallest unit of price movement for a currency pair, which is equal to one basis point. In order to easily understand this concept, we must first look at the quoted Forex currency pairs.

When a Forex currency pair is quoted, the price that is listed will usually include a decimal point followed by four numbers. The fourth number from the right is known as the pip. For pairs that include the Japanese Yen, the quoted prices only have two decimal places, so the be the pip would be the second number from the right. The pip represents the smallest unit of price movement that is possible for the given currency pair.

The spread, or difference, between the bid price and the ask price of the currency pair is measured in pips and the size of the spread can vary depending on the pair and the time of day. It is important to remember that while larger spreads can result in bigger profits, they may also involve more risk due to the increased volatility.

In conclusion, a pip is the smallest unit of price movement for a currency pair, which is represented as the fourth or second decimal from the right. It is used to measure the spread between the bid price and the ask price of a Forex quote and factors into the profit or loss made by investors who choose to trade said currency pair. Therefore, it is important that investors understand the concept of a pip in order to properly determine the risk and the potential reward involved with any given currency pair.