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What is a PIP and how is its value calculated?

Smallest incremental move

PIP (percentage in points) is the term used in the currency market to represent the smallest incremental move an exchange rate can make.

For example:

If an exchange rate was previously 1.5220 and now rose by one pip, the exchange rate will be 1.5221. If the exchange rate fell by 10 pips, it would be 1.5210 and so on.

Understanding the value of a pip is very important for your money management because quotations, spreads and order distances are measured with it.

The pip value is always expressed in the quote currency and is calculated divided the units lot trade size for 10.000, or 100 in the case of JPY currency. 

For example:

If we open 1 lot position with currency pair with USD as quote currency (as EUR/USD, GBP/USD etc) the pip value will be 100,000/10,000 = 10 USD, it means that for each pip movement we will gain or lose 10 USD.

If we open 1 lot position with a currency pair with USD as base quote (example USD/CAD) the pip value will be 100,000/10,000 = 10 CAD, in this case we need to convert the CAD into the currency of our balance.

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