What are pips - Answer

Q. What are "pips"?

The term is actually short for "percentage in point". In common usage the term means the minimum allowable price move of a currency's exchange rate.

As an example, let's suppose that the exchange rate for the Euro/US Dollar (EUR/USD) has moved in the previous ten minutes from 1.2852 to 1.2859. By definition the smallest price move allowable by the Market Makers is $.0001, one hundredth of one cent (one ten thousandth of one dollar); and when following exchange rate movement as displayed by Market Makers on their websites you will see that this is the case. Thus, in the example above the rate change during the ten minute period was $.0007, or, seven pips. Seven pips is worth $70.00 in the EUR/USD market when trading a single currency lot.

How fast can a given Forex currency exchange rate move? On August 4, 2006, at 5:29 am the EUR/USD rate was 1.2799. At 5:31 am the rate had reached 1.2877. A single lot buy would have made 78 pips in two minutes or $780.00 on a single lot trade. In the volatile GBP/USD (British Pound/US Dollar) market on the same day during the same time period the rate moved from 1.8925 to 1.9052; a 127 pip move, translating to a $1270.00 single lot move in the space of just a couple of minutes.

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