In finance, the smallest price change that a given exchange rate can make is referred to as percentage in point also known as pip or point. Since most major currency pairs are priced to four decimal places, so the smallest change is the change in the last decimal point, for most of the currency pairs this is the equivalent of 1/100 of one percent, or one basis point.

Some additional information is needed in order to calculate the pip value or to know that how much is one pip, this information includes: trading size, leverage used, and the actual rate of that particular pair for which you want to calculate the value of pip. For instance, in case of US Dollar, having the trading volume of 1 lot (generally it is equal to 100,000 units of the base currency), 10 USD will be the minimum fluctuation point.

Fractional Pips

There are several currency pairs which have traditionally been 4 decimal places but  nowadays they are being quoted out to 5 decimal places and those currency pairs which have traditionally been quoted to 2 decimal places are now quoted out to 3 decimal places. This is due to the reason that greater price transparency has been brought by electronic platforms to the forex market and price competition has become greater, by some platforms an additional decimal place has been added to their quotes.These are including FXCM’s Trading Station II.

Examples

• If in case currently the currency pair EUR/USD is trading at 1.3000 and the exchange rate changes to 1.3010, then the pair is increased by 10 pips.

• A pip is the second decimal place (100.05), In Yen pairs (GBP/JPY, EUR/JPY, USD/JPY), since the Japanese yen is much closer in size to a cent/hundredth of other major currencies.

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