"Pip" (percentage in point) is the basic unit of measurement of currency value change in the Forex market. It is used to express the minimum change in the exchange rate of a currency pair. For more information on pips, spreads, profitability, how to calculate the value of a point, etc., read the blog from Just2Trade -  a leading international investment company, providing its clients with direct access to the major world currency and stock markets. In most currency pairs, one pip corresponds to a change in the fourth decimal place, that is, 0.0001. However, for currency pairs with the Japanese yen, the pip is usually equal to a change in the second decimal place, that is, 0.01.

Why do you need pips in trading?

Pips are a key tool for measuring the profitability or loss of transactions. Traders use them to calculate the cost of currency movement and the potential profitability of a transaction. For example, if a trader bought 1 lot of EUR/USD and the rate rose by 10 pips, then his profit will be $100 (if using a standard lot equal to 100,000 units of the base currency).

Pips and Spreads

The spread, or the difference between the bid and ask price, is also expressed in pips. This is an important number because it determines the cost to a trader when entering a trade. For example, if the spread for GBP/USD is 2 pips, then the price must move in your favor by 2 pips to cover the cost and start making a profit.

Pipets

With the advent of modern trading platforms, the concept of a "pipette" has also become popular. A pipette is a tenth of a pip. For example, if the EUR/USD rate moves from 1.10500 to 1.10501, this movement is 0.1 pip or 1 pipette.

Pips play a key role in forex trading, helping traders measure market movement and manage risk. Understanding how pips work and their importance in calculating profit and loss is an important step to successful trading.