# An Overview of Pips in Forex  People around the world are drawn to the forex trade, for a number of different reasons. Some like it because it offers trading at all hours during the week, whereas stock markets open and close daily. Some look to forex because it can appear to be significantly simpler than stock trading. And others simply want an alternative way to invest. Ultimately though, the forex trade’s widespread appeal has led it to become the biggest investment market in the world, with daily trading volume over \$6.6 trillion, according to a Bloomberg piece written in 2019.

What this means is that there are constantly new traders entering the world of forex. And while it’s a fairly straightforward market, there are a few things all of those new traders need to understand before they get started. One of those things is the importance of a “pip.”

What is a Pip?

‘What is a Pip?’ by FXCM defines a “pip” in forex as an acronym that stands for “Price Interest Point.” It further explains that this refers to “the measurement of the price change for a currency pair expressed in decimal points” — and specifically, the “smallest tradable quantity quoted in the market.” To use some examples, this means that in a currency pair expressed in two decimal points, a pip is any shift in value amounting to 0.01. If a pair is expressed to four decimals, a pip is equal to a change in value of 0.0001, and so on. So, if the value of USD/EUR moves from 0.9145 to 0.9146, it has gone up by a pip.

What Are Pips For?

Because the forex market involves fractions of currency amounts and high-volume trades, pips are essentially used as theoretical units, or simplified expressions of value. These expressions work such that a pip assumes a value based on the currency pair at hand and the value of the exchange rate at a given point. Specifically, a pip’s value is its position divided by the exchange rate. Using the example above then, if the exchange rate of USD/EUR starts at 0.9145, the value of a pip is 0.0001 divided by 0.9145 (which equals 0.00010935).

Understanding this, one can express forex gains and losses as pips, and then calculate the value. So, if a trader buys USD/EUR at 0.9145 and sells it at 0.9165, he or she has gained 20 pips on the trade (which can then be understood as a value relating to the selling exchange rate).