Forex | P
Digits that are added to or subtracted from the fourth decimal place in a currency rate quote. For example, in 1.2246, the number “6” is a pip. It represents the smallest increment of exchange rate fluctuation. Some argue that the name “pips” is an abbreviation for percentage in points. It could also be the FX equivalent of basis points (bps or bips) as used by traders of bonds and other interest rate-based instruments. Nevertheless, the pip can be broken down into decimals or fractionals (which refer to one-tenth of a pip). The bid-ask spread could be 2.3 pips, meaning 2 pips and 3 decimals. Most currency pairs are quoted using five pips. The following table enlists some of the major currency pairs and crosses (as on November 21, 20012), with the pip being the last number to right:
|Currency pair||Exchange rate|
The pip is, respectively, 8, 0, 1, and 7. For all currency pairs except those involving the Japanese yen (JPY), there are four digits behind the decimal point (and hence the pip is 1/10,000). For a currency pair in which the yen is a leg, there are two digits behind the decimal point (therefore, one pip equals 1/100). Whatever is the currency pair, the last digit is the pip.
Pips are also called points (a pip is a point).