Pip stand for
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Not to be confused with pip, pip forex, forex pip.
Pip is an abbreviation of "percentage in point" (sometimes "price interest point"), the smallest conventional increment by which a quoted exchange rate is said to move. For most currency pairs it is the fourth decimal place, so a quote moving from 1.1050 to 1.1051 has moved one pip. The exact size is a market convention rather than a fixed rule, and it varies with the pair and the quoting venue.
What the abbreviation stands for
The phrase behind the acronym is percentage in point, though the older reading price interest point is also encountered. Neither phrase carries an operational meaning beyond naming the unit: a pip is simply the standard last-place increment used to quote a pair.
For pairs quoted to four decimal places, one pip is 0.0001. For pairs quoted to two decimal places, notably those involving the Japanese yen, one pip is 0.01. Some venues quote an extra digit, the fractional pip or pipette, which is one tenth of a pip.
Worked example
A trader holds a position in a pair quoted to four decimal places and the quote moves from 1.1050 to 1.1080.
The same arithmetic applies in reverse for a falling quote. The monetary value of one pip depends on position size and the quote currency, so the pip itself is a price unit, not a cash amount.
Where the size is not universal
The fourth-decimal convention is widespread but not universal. Yen pairs are typically quoted to two decimals, making one pip 0.01 there. Some instruments and venues quote to five decimals, in which case the fifth decimal is a fractional pip rather than a pip. Because conventions differ by pair and by venue, the pip size should be confirmed from the instrument's own quotation rather than assumed.
Often confused with
- pip
- This is the base entry for the unit itself; the visible sign is that it defines the increment without naming a market.
- pip forex
- This refers to the pip as used specifically in foreign exchange quotation; the visible sign is the word "forex" attached to the term.
- forex pip
- This is the same unit under a reversed word order, used as a headword for the forex context; the visible sign is the order "forex" before "pip".