What are Pips in Forex Trading?

Remember there are hundreds of pairs, for example, if USDINR= 54.50 is increasing to USDINAR= 55.00 then profit is 5o paisa per dollar, it will be confusing if you tell this situation to any foreigner and what will you say if EuroUsd = 1.3050 increasing to EuroUsd=1.3100, you will have a profit of 50 cents, etc. If USDJPY=99.00 to USDJPY = 99.50. you will have no idea what the people of that country say if we say paisa the subunit of rupees, so we are confusing and foreigners are also confusing. There is a need for uniformity because every country has its own currency to understand all traders, so here introduces the concept of pip.

Pip:

Pip is a small change in the Quoted Currency price, it’s usually 1 basic point i.e 1/100th of 1 %. For example, USD/INR= Rs.54.52 will change after a minute to 54.53 this small change in the currency we will say that it has moved by 1 pip. If this change is decreased to 54.51 then we also say it has moved by 1 pip but here in negative and above in positive sense. If USD/ INR = Rs. 54.62 then it has moved by 10 pips. If USD/INR=Rs.55.52, then it has moved by 100 pips.

Another Example:

If we trading in Euro USD, so if EuroUSD = 1.3090 to increase EuroUSD = 1.3095, so you will say the pair moved by 5 pip. Normally all pairs are either in 4 decimals like EuroUSD = 1.3090, decimals are count after the point. Or 2 decimals like USDINR = 54.52 and USDJPY = 99.59.

In the good old day’s brokerages/ spread were like 10 pips or 15 pips, but now because of competition brokerages are quoting in fractions of a pip, like 2.5 pips spread on EuroUsd and 3.5 pips spread on GBPUSD. So the brokers started quoting in 5 decimals. 

MT4 Terminal:

Let’s go to the MT4 Terminal and see how the best mt4 indicators pips looks like. Here you remember there are two types of Brokers A four-digit broker and A five-digit broker. Let’s see the difference in the way they quote the price. When we check the USDINR 54.620 / 54.640, here 54.640 is our quoted price but seen zero here is 3 or 4 when the market is functional.

5-digit broker

This broker is actually 5-digit broker and remembers a 5-digit broker quotes the last digit in a smaller case compared to all other digits. If we see EuroUSD like 1.31099/ 1.31109, here in MT4 terminal if you want to calculate pip then you did not calculate last value which is seen small, you will calculate the number before the small value as you see in EuroUSD value is changing from 09 to 10, we did not calculate the last digit 9 here. Because in 5-digit the last digit is actually the fraction of pip so we did not consider it and we consider as a calculation the digit before the last digit. The smaller case value is called Pipette. Don’t worry when you work on MT4 you will easily understand.