Forex Pips

How many pips you make daily? How can I make many pips per each trade in forex trading? Forex trading revolves around making pips. Almost every trader wants to make as many pips as he/she can per trade. Pip is an extremely important concept in the foreign exchange trading. A forex pip is the smallest unit of price movement in the exchange rate of a currency pair. Pip stands for “Percentage in Points” or some refer to it as “Price interest point”.

Pip is almost similar to the tick found in other financial markets like the futures market. Earned pips are the reward for a good trade. Traders trade foreign exchange in order to make as many pips as they can. And lost pips are the punishment for a bad trade.

Every currency’s price is always expressed relative to another currency. There is no absolute currency price for US Dollar. However, you can express US Dollar price relative to Euros, British pounds, Yen, Swiss Franc and so on. It is the same with every other currency pair. Most of the currency pair exchange rates are expressed up to four decimal places. Forex pip refers to one point change in the fourth decimal place of the most major currency. Why most? Because there is a currency that is expressed up to two decimal places relative to the other currencies. Yes, Japanese Yen!

The convention is to express for most of the currency pairs the exchange rate like x.xxxx where a change of 0.0001 would constitute one pip. A pip would be the equivalent of 1/100th of one percent or one basis point. You must be familiar with the concept of basis points used in calculating the interest rate changes. You must have often heard that the FED or for that matter any other central bank has increased or decreased the interest rate by 15 basis points. Pip is almost similar to a basis point.

We said almost all the currency pair’s exchange rates are expressed in term like x.xxxx except those that involve Japanese Yen on either side of a currency pair. The exchange rate format would look like xxx.xx where a change of 000.01 would constitute one pip, for the handful of currency pairs featuring the Japanese Yen like GBP/JPY or USD/JPY.