During the webinar I hosted featuring trading guru Mario Singh, he explained what’s a PIP in Forex Trading:

Let me explain to you what a PIP is. Now, when you look at the EURUSD (Euro-Dollar), you’ll see that they will quote you to four decimal places. This is the beauty of Forex market. To illustrate, we have a quote of EURUSD that is equal to 1.3510. The currency on the left (EUR) is called the Base Currency, and the currency on the right (USD) is called the Counter Currency.

The quote is read like this: 1 EUR is equivalent to 1.3510 USD at that point of time. Take note that this figure, 1.3510, can either move up or it can come down. You can go to 1.3550 or it can come down to 1.3450. Take note that when the number increases, it means that Euro has strengthened against the U.S. Dollar. If the number has dropped or decreases, it means the Euro has weakened against the U.S. Dollar.

So, 1 PIP simply means the smallest price movement. If the EURUSD moved to 1.3511, which is a movement of 0.0001, or if comes down to 1.3509, that is a movement of 1 PIP – very simple. Now, to give you an example, if the EURUSD moves from 1.3510 to 1.3610, this is a movement of 100 pips. To be more specific, it is a strengthening of the EUR against the USD by 100 pips.

Now how would you make money? On your platform, click the word “buy.” That’s all. In Forex, it’s just basically Buy and Sell. If you had clicked buy and the EUR actually strengthened from 1.3510 to 1.3610, you would have made a 100 PIPS. If the AUDUSD moves down from 1.0607 to 1.0584, that is a movement of 63 PIPS. If you had clicked the word “sell” and the AUD actually weakened form 1.0647 to 1.0584, you would have made 63 PIPS.

In the Forex market, you can click buy or sell at any time. It’s not like the stock market where you can only sell something that you previously own. In the Forex market, you can buy or sell at will.

Now, just a quick note, when the Japanese Yen is quoted on the counter currency, meaning to say when JPY is on the right-hand side of any currency pair, you only quote it to two decimal places as opposed to four. So, in this case, you will see something like USDJPY = 89.10 or 99.10. The JPY is not quoted to four decimal places – so, 89.11 or 89.09 that is a movement of 1 PIP.

Let me just tell you the most beautiful part of the Forex market. What exactly is the value of 1 PIP? The Forex market pays 1 PIP 10 USD. Let me give you an example. Say, the value of 1 PIP is 10 USD. So, if it moves from 1.3510 to 1.3610 in the US price, and you make 100 PIPS, which is essentially 1000 USD that you have made for yourself in the market because the Forex market pays you 10USD on the smallest decimal point. This is one of the biggest draws of the Forex market.

For Premium Webinar Members (PWM), you can watch the full session and learn the important things about Forex trading here:


KCLau
KCLau

Personal finance author and trainer

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