What is a PIP? (Percentage in Point)

Pip plays a very important role in Forex Trading. It is the smallest changes in currency rates are measured by Pips. Since the Forex Market is characterized by relatively small fluctuations, the pip is, in most cases, the fourth digit after the decimal point. Yet in some currencies, such as the Japanese yen, the pip is the second digit after the decimal point. By using pips, the difference between the ask and bid prices can be measured at any given time, as well as the daily volatility of these values, which ultimately determines profit or loss.

How is the Pip Value Calculated?


Within the EUR/USD currency pair, for example:
From $1.5489 to $1.5490 – this is a rise of one pip in the currency's value.
If the bid price is at $1.5489 and the ask price is at $1.5486 – The spread between the bid and ask price is of 3 pips.
In an investment of $100,000, every pip is worth $10 (divide the sum of the investment by 10,000, as the pip is located in the fourth digit after the decimal point in this pair). 
Within the USD/JPY currency pair:
From 106.63 yen to 106.64 yen – this is a rise of one pip in the currency's value.
If the bid price is at 106.63 yen and the ask price is at 106.60 yen – The spread between the bid and ask price is of 3 pips.
In an investment of $100,000, every pip is worth a 1000 yen (divide the sum of the investment by a 100, as the pip is located in the second digit after the decimal point in this pair).