Pip Digits
Forex traders express the distance between market prices in terms of what is known as “pip digits.” These are measured by a standard number of digits after the decimal point. The standard number of digits used depends upon the currency pair.
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“Pip” is actually an acronym that stands for “percentage in point” or “price interest point.” The standard market price that can move in Forex is one pip. Most of the currency pairs measure pips by the fourth digit past the decimal point. A pip is equal to 1/100 of one percent. For example, the smallest market movement for the EUR/USD currency pair is $0.0001. This means if the EUR/USD market appreciates from 1.18117 to
1.18121 the market has moved up by 4 pips.
On the other hand, there are certain exceptions to the four digits beyond the decimal point rule. Currency pairs that have the Japanese yen (JPY) as one of the currencies being traded, measure pips by only two digits beyond the decimal point.
Pip values in these currency pairs are expressed as 1/100 divided by the current rate of exchange. For instance, if the USD/JPY currency pair is currently trading at 104.30, one pip is equivalent to 1/100 divided by 104.3 which is equal to 0.00009588.
Also, in Forex, the difference between the bid and ask prices of an asset, referred to as the spread, is generally measured in terms of pips.
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