The Forex market is rife with a fair amount of complex jargon and abbreviations. However, it is relatively easier to understand it, than it seems. It is also imperative to do so, as understanding their meaning can allow you to trade successfully in the Forex market. A ‘PIP’ stands for percentage in point. It is the smallest price change that any given exchange can make, and an increase or decrease in PIP’s represent the profit or loss you make while trading in the Forex market.
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Understanding the PIP
The Japanese Yen, is the only exception to the four decimal point rule. In the case of the Yen, the quote is only up to 2 places, for instance ¥43.21. However, the change in the last digit after the decimal point will be considered as the rise or fall of the PIP in this case.
How does a PIP work?
While these numbers may seem relatively small, trading in currencies of the exact practice is carried out in millions of dollars as well by large trading companies.
An additional kind of PIP is the fractional PIP, which is a tenth of a PIP. The smaller fraction of the PIP allows you to monitor and track the slightest movements in the market allowing you to make an informed decision.