What Are Forex Pips?

Forex pips are the base unit in the Forex market and getting them is what you are after when trading. When trading the market, you need to understand how to determine what a pip is and how much it is worth to you. Here are the basics of what pips are and why they are important to you as a trader.

Pips

A pip is the smallest unit of measurement in the Forex market. When you trade in the Forex market, you deal with currency pairs. You trade one currency against the other to try to make a profit on the exchange rate. When one currency changes in value against the other, the smallest unit that changes is the pip.

The pip is typically the fourth decimal place on a currency quote. For example, when you look at a currency quote and it says .8347, the "7" is the pip value. With five digit brokers, you would see a quote such as .83479. In this case, the "9" is a fractional pip value and the "7" is the whole pip value. So basically, this quote has a 7.9 pip value on the end of it.

Calculating Profit

In Forex trading, traders regularly determine profit by how many pips were won in a trade. For example, if you opened a buy trade at .8347 and closed it out at .8357, you would have made 10 pips.

Lot Size

The lot size of the trade has an impact on how much money you make. For example, when you trade .1 lots, each pip is worth $1. So if you open a trade at .5 lots and and you win 10 pips, you just made a profit of $50.

Purpose of Forex Trading

When you trade the Forex market, your ultimate goal is to try to make pips. You want to make pips and then keep them. You probably won't be able to make pips on each trade, but you need to make more than you lose. Try to minimize lost pips and maximize your winning trades. If you can do that successfully, you're well on your way to making money in the foreign exchange market.

Return From Forex Pips to Forex Market

Return from Forex Pips to Forex Trading