Definition – What does Price Interest Point (Pip) mean?
The price interest point (PIP) is a basic unit in forex trading that is used to measure the change in value in a currency pair. It is usually equivalent to 1/100th of 1%, but this depends on how many decimal places a currency pair is quoted to. Basically, a pip is always the smallest amount by which moves in a currency pair’s value can be measured
The price interest point is more commonly called a pip, after its acronym PIP.
ForexTerms explains Price Interest Point (Pip)
In general, a currency pair is quoted to four decimal places – for example USD/AUD = 0.9549. So, if a currency trader wants to trade 10,000 units of AUD, it will require $10,472.30 USD. This number is calculated as (1/0.9549)*10,000. If the currency pair increases one pip to 0.9550, the value of the position is now $10,471.20. That one pip is worth a difference of $1.30 in the value of the position. If the trader is using 50 times leverage on the trade, that pip is worth $75 ($1.30*50). A currency pip can easily move over 40 pips a day, meaning that the value of the position could swing over $3000 in value. Whether that is profit or loss, depends on which currency the trader is long and which currency he is short.
Although traders count pips while in the trade, the still express profits and losses in terms of percentages once trades are closed. This means that they might watch for a certain number of pips before closing a position, but they will log the trade in terms of percentage gain (or loss) in their trading log.
