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What does a pip mean?You may have come across terms such as making 400 pips of profit, which would seem to indicate that a pip is some sort of currency value. However, the situation is actually a little more complicated than that.
A pip does measure the change in value of a currency – it is the smallest price change that any currency can make. Most pips are equal to a 0.0001 price change. For instance, the EUR/USD currency pair price might change from 1.4030 to 1.4031 – this is a one-pip movement.
However, there is an exception to this definition of a pip. Where a currency has a low unit value, the price is only quoted to 2 decimal places, not 4. In this case, a pip is 0.01 rather than 0.0001. The best example of this is the Japanese yen – if the USD/JPY currency pair increases from 104.22 to 104.23, this is a one-pip change.
The other important thing to remember about pips is that not all pips are equal. The value of a pip is tied to the denominating currency in a currency pair. Therefore, a 100-pip rise in CAD/USD is the same as a 100-pip rise in GBP/USD – both are a rise of one US cent. However, when the denominating currency is different, then a pip does not have the same value. For instance, a 100-pip rise in USD/CHF is a rise of 1/100 of a Swiss franc, not one US cent.
How does this relate to spreads?When the price of any currency pair is quoted, there are actually two prices. The first is the bid price – this is how much is being offered for the currency pair. The second is the ask price – how much sellers are asking. The difference between the two is called the spread and is measured in pips.
Buy orders are executed at the higher ask price, while sell orders are executed at the lower bid price. This means that if a trader buys and then sells immediately, they will always lose the amount of the spread. Because of this, forex traders generally look for low spreads, since the spread is the equivalent to a tax – although a private one – on each transaction.
Of course, the money that traders lose on spreads has to go somewhere. In fact, the spread ends up with the market maker or broker – this is where they make their profits. This is also why forex trading typically doesn’t involve commissions, since the broker’s profit is already built into each trade.
Published On Tue, Sep 16 2014, 11:48 GMT Previous entries of What are Pips and Spreads in Forex? RSS
FXTM Research Team Follow Follow my activity on FXStreet ForexTime (FXTM) website Contact Contact by email Forex Time (FXTM) is an international online forex broker regulated by the Cyprus Securities and Exchange Commission (CySEC) and in accordance with Law 144(I)/2007 is also a member of the Investor Compensation Fund (ICF). More articles by this author Also Read Why can't I just follow your trades? JarrattDavis.com What is your attitude towards risk / reward? JarrattDavis.com 6 Key Terms You Need to Know Before You Start Forex Trading (Wed, Sep 17 2014) MXT Global Do Forex brokers hunt your stop losses? JarrattDavis.com
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Related Content ReportsWebinars Why can't I just follow your trades? JarrattDavis.com What is your attitude towards risk / reward? JarrattDavis.com 6 Key Terms You Need to Know Before You Start Forex Trading (Wed, Sep 17 2014) MXT Global Do Forex brokers hunt your stop losses? JarrattDavis.com Tags: spreads, pip, basics View All One Day One Topic: LEVERAGE - Leverage changes everything Dirk Du Toit One Day One Topic: LEVERAGE - The 5 Point Blank Reasons Why Leverage Stopped Me From Growing in Forex Navin Prithyani My Top 10 Trading Mistakes that Retail Traders Tend to Make Greg Michalowski Non Volatility/Low Volatility Trading Nenad Kerkez Critical Elements to Success in Trading Chris Lori, CTA Tags: spreads, pip, basics View All Most Popular Content ViewedE-MailedRatedHighlighted EUR/USD training at 1.2620 before another leap by FXStreetOct 1, 06:33 GMT EUR/USD: entering waiting mode by FXStreetSep 30, 19:20 GMT EUR/USD wobbling around 1.2600 by FXStreetOct 1, 10:22 GMT The dollar index hit a new four-year high of 86.218 by ZuluTradeOct 1, 07:23 GMT USD/JPY: Long at 108.60 for110.67; revised stop 109.09 by Danske Bank A/SOct 1, 05:22 GMT USD/JPY came back home below 110 by FXStreetOct 1, 09:03 GMT EUR/USD: entering waiting mode by FXStreetSep 30, 19:20 GMT It looks like the ECB has a tough row to hoe come Thursday by Rockefeller Treasury Services, Inc.Sep 30, 12:45 GMT Trading plan for Oct. 1 by FX BAZOOKASep 30, 14:18 GMT USD/JPY takes another stab at 110.00 but meets selling
Wed, Oct 1 2014, 12:24 GMT ADP employment report shows a gain of 213,000; better than expected
Wed, Oct 1 2014, 12:15 GMT GBP/USD to preserve negative bias until 1.6050
Wed, Oct 1 2014, 12:12 GMT Traders Tools Forex Studies Monitor the markets with our customizable FX studies. Economic Calendar Live economic events calendar Live Currency Rates Live Forex Charts Rate history tool Currency Converter more tools Upcoming Live Events US Session Open Premium Webinar
Oct 01, 13:00 GMT Ed Ponsi
Preparing for the ECB and the NFP in the wake of Q4
Oct 01, 14:00 GMT Yohay Elam
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Oct 01, 16:00 GMT Andrei Knight
Latest Webinar Recordings Elliott Wave Live Analysis by Gregor Horvat | Tue, Sep 30 2014 US Session Open by Ed Ponsi | Mon, Sep 29 2014 US Pre-Market Open by Ed Ponsi | Mon, Sep 29 2014 Subscribe to RSS Preferred brokers in your location Rates & Charts Streaming Forex Rates Live Currency Rates US Dollar Index Exchange Rate Table Streaming Forex Charts Live Charts Window Currency Charts Console News Forex News Forex Tweets Forex Analysis Trading Positions Currencies Forecast Poll Technical Studies EUR/USD Exchange rate GBP/USD Exchange rate USD/JPY Exchange rate Economic Calendar Economic Calendar World Interest Rates Countries Forex Market Hours Webinars Schedule ArchiveEducation Learning Center Brokers Looking for a Broker/FDM? Platforms Stay ConnectedFacebook PageTwitter News FeedTwitter Research FeedTwitter UpdateRSS News FeedYoutube Google+FXStreet Social NetworkBlog
3 Contact information Full Name* Email* City/State* Telephone* Amount looking to invest* 0 - 4,999 USD 5,000 - 9,999 USD 10,000 - 24,999 USD 25,000 - 50,000 USD > 50,000 USD Message: (optional) Optional message to broker... By clicking Submit, I certify that I have read and agree to the FXStreet Privacy Policy Please select between 1 and 4 brokers to contact Don't show this form again Note: FXStreet treats your personal information as confidential and does not disclose it to any third parties other than the company selected. Your privacy is our greatest concern. Previous Next Sign up | Login English ??? Español ???? ???? ??????? Français Indonesia ??????? Italiano Deutsch Português Magyar Türkçe Ti?ng Vi?t Català ???
HomeRates & ChartsNewsAnalysisEconomic CalendarTechnicalToolsWebinarsEducationBrokersServicesFX NetworkEducational ArticlesForex BasicsTrading Strategies Markets RegulationTechnical AnalysisFundamental AnalysisMarket PsychologyRelated MarketsResourcesBooksDVDsGlossaryConventionsWorkshopsLearning CenterWelcomeUnit A: Absolute EssentialsUnit B: Analytical ToolsUnit C: System ModelingUnit D: Sum Up and Go Feedback We use cookies, internal and external, to improve your experience by offering content related to your preferences. By continuing to browse you are agreeing to our cookies policy. What are Pips and Spreads in Forex? 
Tue, Sep 16 2014, 11:47 GMT
by FXTM Research Team | ForexTime (FXTM)
What does a pip mean?You may have come across terms such as making 400 pips of profit, which would seem to indicate that a pip is some sort of currency value. However, the situation is actually a little more complicated than that.
A pip does measure the change in value of a currency – it is the smallest price change that any currency can make. Most pips are equal to a 0.0001 price change. For instance, the EUR/USD currency pair price might change from 1.4030 to 1.4031 – this is a one-pip movement.
However, there is an exception to this definition of a pip. Where a currency has a low unit value, the price is only quoted to 2 decimal places, not 4. In this case, a pip is 0.01 rather than 0.0001. The best example of this is the Japanese yen – if the USD/JPY currency pair increases from 104.22 to 104.23, this is a one-pip change.
The other important thing to remember about pips is that not all pips are equal. The value of a pip is tied to the denominating currency in a currency pair. Therefore, a 100-pip rise in CAD/USD is the same as a 100-pip rise in GBP/USD – both are a rise of one US cent. However, when the denominating currency is different, then a pip does not have the same value. For instance, a 100-pip rise in USD/CHF is a rise of 1/100 of a Swiss franc, not one US cent.
How does this relate to spreads?When the price of any currency pair is quoted, there are actually two prices. The first is the bid price – this is how much is being offered for the currency pair. The second is the ask price – how much sellers are asking. The difference between the two is called the spread and is measured in pips.
Buy orders are executed at the higher ask price, while sell orders are executed at the lower bid price. This means that if a trader buys and then sells immediately, they will always lose the amount of the spread. Because of this, forex traders generally look for low spreads, since the spread is the equivalent to a tax – although a private one – on each transaction.
Of course, the money that traders lose on spreads has to go somewhere. In fact, the spread ends up with the market maker or broker – this is where they make their profits. This is also why forex trading typically doesn’t involve commissions, since the broker’s profit is already built into each trade.
Published On Tue, Sep 16 2014, 11:48 GMT Previous entries of What are Pips and Spreads in Forex? RSS
FXTM Research Team Follow Follow my activity on FXStreet ForexTime (FXTM) website Contact Contact by email Forex Time (FXTM) is an international online forex broker regulated by the Cyprus Securities and Exchange Commission (CySEC) and in accordance with Law 144(I)/2007 is also a member of the Investor Compensation Fund (ICF). More articles by this author Also Read Why can't I just follow your trades? JarrattDavis.com What is your attitude towards risk / reward? JarrattDavis.com 6 Key Terms You Need to Know Before You Start Forex Trading (Wed, Sep 17 2014) MXT Global Do Forex brokers hunt your stop losses? JarrattDavis.com Legal disclaimer and risk disclosure
Forextime is regulated by CySEC under license number 185/12 and registered with the UK FCA under reference number 600475.
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Don't miss it out!You can be one of the five winners of this contest, with prizes of up to $10,000 in trading accounts and more gifts.Register now!Related Content ReportsWebinars Why can't I just follow your trades? JarrattDavis.com What is your attitude towards risk / reward? JarrattDavis.com 6 Key Terms You Need to Know Before You Start Forex Trading (Wed, Sep 17 2014) MXT Global Do Forex brokers hunt your stop losses? JarrattDavis.com Tags: spreads, pip, basics View All One Day One Topic: LEVERAGE - Leverage changes everything Dirk Du Toit One Day One Topic: LEVERAGE - The 5 Point Blank Reasons Why Leverage Stopped Me From Growing in Forex Navin Prithyani My Top 10 Trading Mistakes that Retail Traders Tend to Make Greg Michalowski Non Volatility/Low Volatility Trading Nenad Kerkez Critical Elements to Success in Trading Chris Lori, CTA Tags: spreads, pip, basics View All Most Popular Content ViewedE-MailedRatedHighlighted EUR/USD training at 1.2620 before another leap by FXStreetOct 1, 06:33 GMT EUR/USD: entering waiting mode by FXStreetSep 30, 19:20 GMT EUR/USD wobbling around 1.2600 by FXStreetOct 1, 10:22 GMT The dollar index hit a new four-year high of 86.218 by ZuluTradeOct 1, 07:23 GMT USD/JPY: Long at 108.60 for110.67; revised stop 109.09 by Danske Bank A/SOct 1, 05:22 GMT USD/JPY came back home below 110 by FXStreetOct 1, 09:03 GMT EUR/USD: entering waiting mode by FXStreetSep 30, 19:20 GMT It looks like the ECB has a tough row to hoe come Thursday by Rockefeller Treasury Services, Inc.Sep 30, 12:45 GMT Trading plan for Oct. 1 by FX BAZOOKASep 30, 14:18 GMT USD/JPY takes another stab at 110.00 but meets selling
Wed, Oct 1 2014, 12:24 GMT ADP employment report shows a gain of 213,000; better than expected
Wed, Oct 1 2014, 12:15 GMT GBP/USD to preserve negative bias until 1.6050
Wed, Oct 1 2014, 12:12 GMT Traders Tools Forex Studies Monitor the markets with our customizable FX studies. Economic Calendar Live economic events calendar Live Currency Rates Live Forex Charts Rate history tool Currency Converter more tools Upcoming Live Events US Session Open Premium Webinar
Oct 01, 13:00 GMT Ed Ponsi
Preparing for the ECB and the NFP in the wake of Q4
Oct 01, 14:00 GMT Yohay Elam
Institutional Trading Strategies
Oct 01, 16:00 GMT Andrei Knight
Latest Webinar Recordings Elliott Wave Live Analysis by Gregor Horvat | Tue, Sep 30 2014 US Session Open by Ed Ponsi | Mon, Sep 29 2014 US Pre-Market Open by Ed Ponsi | Mon, Sep 29 2014 Subscribe to RSS Preferred brokers in your location
Rates & Charts Streaming Forex Rates Live Currency Rates US Dollar Index Exchange Rate Table Streaming Forex Charts Live Charts Window Currency Charts Console News Forex News Forex Tweets Forex Analysis Trading Positions Currencies Forecast Poll Technical Studies EUR/USD Exchange rate GBP/USD Exchange rate USD/JPY Exchange rate Economic Calendar Economic Calendar World Interest Rates Countries Forex Market Hours Webinars Schedule ArchiveEducation Learning Center Brokers Looking for a Broker/FDM? Platforms Stay ConnectedFacebook PageTwitter News FeedTwitter Research FeedTwitter UpdateRSS News FeedYoutube Google+FXStreet Social NetworkBlog Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.
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