By ForexBonusLab

What is Percentage in point, or PIP? It is the smallest change the exchange rate between two currencies can have. Most currencies are traded are priced to four decimal places; the pip is the last unit of the decimal point. However, for many investor, this is an unfamiliar topic. Even if they have heard of it before, its meaning remains unknown. If this is your case, you should take some time to start investigating on the matter. In this article, we will teach you about the basics you need to know about it.

The term pip  (instead of Percentage in point) is used to help traders out, since as it also a bit in a unit change it can be mistook with other terms of the trading world such as points, lots, and particularly tick.

A tick is the smallest possible price change on the right side of a decimal point and it is deemed the equivalent a pip, but if you compare them, you will see that a tick is five times the amount of a pip in different markets.

Factors that Affect the Value of Pips

• Currency pairs

The value of a pip is subject to the currency pairs equivalents on the market. This means that only specific currencies can establish the value of a pip because of the difference between the exchange rates.

• Leverage

Leverage refers to spent money borrowed as an investment capital. It change the value of a pip because the amount you have is proportional to the risk you take. Just by having it you can increase volatility in activities. You should be careful with this because just by losing a few pips, you can lose all your earnings.

Example

If you want to know the value of a pip, you just have to observe the original price and its changes because the pip will be difference among these amounts. Therefore, if a currency pair is trading at 2.32851 you will establish the value if that amounts changes to 2.32852, which in that case will be an increase, or to 1, which will be a decrease.

Fractional Pip (Pipette)

Now, a fractional pip is the tenth of a pip. For instance, if a pip were $100, the fractional pip would be $10.  This is a new pricing feature, which allows traders to see the price action in detail and to make better decisions when trading.  Although a pip only involves small sums, a pipette can make a difference in a clear prediction since it let traders take advantage of all price increments and moves in the market no matter how small.

Even if you consider the pip to be a small detail, you should definitely take some time to learn about it. You would not want to lose money over not understanding simple term. Remember that the Forex is not the same as regular markets; therefore, you do not have clearing houses warranty to support you.

Remember, the more pips you get, the more money you will make. So, get a good Forex book from Forex-Library and start making more pips today!