What is a Pip in Forex Trading?

Pip is the short form of “Percentage in point” which is a unit of change in an exchange rate of a currency pair.

Among the major currencies, only Japanese Yen (JPY) is priced to two decimal places. All other major pairs are priced to four decimal places.

There is a formula to calculate the pip value which is given below,

Pip = Lot size x Tick size

Here, Tick size = Smallest possible change is the price

For 1 standard lot (100,000 units) of EUR/USD,

1 pip = 100,000 x .0001 = $10

Calculating Profit/Loss:

Here is a formula to calculate profit/loss.

For long positions,

Profit/Loss = Lot size x (Selling price – Buying price)

For short position,

Profit/Loss = Lot size x (Buying price – Selling price)