Pip is a unit utilized at the foreign exchange market. It is a convenient way to denote value changes for currency pairs.
With the exception of the Japanese Yen, the major currencies on the FX market are priced in four decimal planes, with a pip being one unit of the fourth decimal point. For the Japanese Yen, one pip is instead one unit of the second decimal point.
- The exchange rate for the currency pair EUR/USD changes from 1.5942 to 1.5946. This is a 4 pip increase.
- The exchange rate for the currency pair EUR/USD changes from 1.5942 to 1.5941. This is a 1 pip decrease.
Traditionally, changes in value smaller than one pip has not been displayed. Today, you can find forex trading platforms online where value is shown in fractional pips. By adding an extra decimal, these platforms show changes as small as 1/10 pip.
For currency pairs that are traded down to the fourth decimal, these detailed forex trading platforms will typically display a 5-decimal exchange rate. Examples of such currency pairs are EUR/USD, EUR/GBP, GBP/USD, GBP/CHF, USD/CHF, USD/CAD, NZD/USD and AUD/USD.
Currency pairs that involves the Japanese Yen are typically only traded down to the second decimal even though they can be displayed with three decimals. Examples of such pairs are the USD/JPY, EUR/JPY and GBP/JPY. For these currency pairs, a one pip change denotes a one step change at the second decimal. So, if the exchange rate for EUR/JPY moves from 142.125 to 142.145 this is a 2 pip increase and NOT a 20 pip increase.