Pip (forex)
A pip ( English percentage in point , also: price interest point ) is a unit in forex trading in which the price change of a currency pair is indicated.
A pip is a change in the currency exchange rate by ± 1 in the fifth digit in the exchange rate. For exchange rates that have exactly one place before the decimal point (e.g. 1.2016 USD / EUR), this corresponds to a change to the fourth decimal place, i.e. ± 0.0001.
A similar term is the tick size : The tick is the smallest possible price change on cash and futures exchanges .
example
A Polish trader buys an amount of EUR 1,000,000 with zloty (PLN). The exchange rate is 4.2500 PLN / EUR, i.e. H. one euro costs 4.25 PLN. Thus, the trader has to pay PLN 4,250,000.
If the exchange rate increases by one pip to PLN 4.2501 / EUR, its EUR 1,000,000 is now worth PLN 4,250,100. There is a price gain of 100 PLN.
Conversely, if the PLN / EUR exchange rate drops to 4.2499, the 1,000,000 EUR is only worth 4,249,900 PLN. There is a price loss of 100 PLN.
The change in value is therefore ± PLN 100.00 per pip.
In order to express the change in value in EUR, it has to be multiplied by the respective exchange rate, i.e.
- Profit: PLN 100.00 ÷ PLN 4.2501 / EUR = EUR 23.52886
- Loss: PLN 100.00 ÷ PLN 4.2499 / EUR = EUR 23.52997