What is a PIP?

The fractional pip was introduced with the advancement of e-commerce and owes it to the increase in Forex turnover, but also (very importantly for traders) to reduce transaction costs. I think every trader will agree with me that a 1.6-pips spread will be better than the full 2-pips that would have to be paid in times where quotes were held to four decimal places.

Partial pip

There are many names on the forex market that do not have Polish equivalents. One of them is the so-called pip. As you can find out from sources available on the Internet, “a pip is the smallest unit of change in an exchange rate”. This was actually the case, but this unit was divided into 10 parts and the so-called partial pip.

It is said that the name pips is percentage in point, which is a percentage of a point. So if we want to find out where the pip is located in a given currency pair, we should first determine the position of the point.

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In the example above, we have shown quotes for two currency pairs. The first one is EURUSD with the rate at 1.07957. In her case, the point is on the second decimal place (7), while the percentage of the point, so the pip is the fourth digit after the decimal point (5). The small digit at the very end is a subpip that has a value of 7.

The situation is somewhat different with quote pairs with the Japanese yen. As you can see in the example, there are three numbers before the comma. The point is the first digit before the decimal point (8), while the pip is second to the decimal point (6). Of course, the partial pip is at the very end and is half a pip (5).

A point on the MT4 platform is obviously a partial pip, i.e. a tenth of a pip. If, when modifying our position, we would like to set the stop loss and take profit levels on the values indicated in the above example, it will turn out that they will be moved 10 pips (100 points on the MT4 / 10 platform = 10 pips) from the current ASK / BID price.

Note: Also for indices we will treat points differently than when trading currencies.

Pip value

Each change in the rate of a currency pair may be associated with a profit or loss for us, depending on which side of the market we are on. The amount of gains and losses will depend on the size of the position. The greater our position, the greater the pip value and therefore the profit / loss.

The pip value is always expressed in the quote currency, so if you want to calculate the pip value for the EURUSD currency pair, it will be calculated in US dollars.

So how do you calculate the pip value for the standard unit (1 lot) on the EURUSD pair?

1 lot = 100,000 units of the base currency

1 pip for EURUSD = 0.0001, therefore:

100,000 x 0.0001 = $ 10

The situation will be different, for example, for the USDJPY pair, where the pip is 0.01 and its value is expressed in Japanese yen (JPY): 100,000 x 0.01 = 1,000 JPY.