What does Pip Mean in Forex Trading?

 

Newly-entered forex traders often hear the word "pip". If you too have just entered the market, then you may also be frequently hearing this word. Do you know what it stands for? Do you also know why it is important to understand this word? For all such questions in your mind, our blog will provide you with clear answers.

What is Pip in Forex?

Veonco, an accomplished forex broker, says that even when you are new to the market, you will understand that forex trading has a lot to do with the changing prices of currency pairs. For calculating these changes in prices, a method is applied. This method is called pip or percentage in point. Through pips, the changes in prices get represented in the form of units. These units can then be changed into several currency values.

To make this even simpler for you, when a currency pair's price changes, a pip is used for measuring it. The smallest change which can be made by an exchange rate on the market can be considered as pip.

Usually, when currency pairs get priced, it is done to four decimal places. The decimal point which is last is the smallest change. It is equal to one by hundred of 1 percent. So, when a forex trader says that 40 pips were made on a trade, that means he/she was profited by 40 percentage in point.

Why Do You Need to Understand Pip?

Veonco review says that keeping your basics of forex trading clear is the first reason to understand pips. Secondly, understanding pips can indicate your profits or losses. As you can understand, a pip helps you calculate the change amount for a currency pair in the exchange rate. By calculating this, you can know whether you are trading forex in a profitable way.

To Conclude

Understanding pips in forex is required for better knowledge of trading. Having no clue of what a pip is will surround you with confusion. Also, when you know what a pip is and you can calculate it, you can know whether a trade helped you gain or lose.