In forex trading, a pip, short for “percentage in point” or “price interest point,” is a fundamental unit of measurement for changes in a currency pair’s exchange rate. Typically, a pip represents the smallest price movement that an exchange rate can make based on market convention.

For most major currency pairs, a pip is the movement in the fourth decimal place (e.g., from 1.2345 to 1.2346 is a one-pip move). However, for pairs that include the Japanese yen, a pip is usually the movement in the second decimal place due to yen pairs being quoted to two decimal points (e.g., from 110.45 to 110.46).

Understanding pips is essential for traders, as they allow for accurate measurement of price movements and potential profits or losses. Calculating the value of a pip depends on factors like the currency pair being traded, the trade size, and the exchange rate, making it a key concept in managing risk and understanding position sizes in forex.

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