Forex trading is one of the most lucrative markets in the world. However, it's very different from trading on other financial markets, such as stocks or commodities. Learning currency trading basics, as well as mastering Forex trading secrets, are essential if you want to profit from this market.

One of the most important aspects to learn is Forex pip calculation. So what is a pips in Forex ? This Forex pip definition guide will explain the nitty-gritty of Forex pip specifics and how they translate into your trading strategy.

What is a Pip in Forex?

The acronym PIP stands for point in percentage and is the smallest price change in the value of a currency exchange rate. Currency is typically traded in pairs in Forex. The pip value is usually the fourth number after the decimal point in a currency pair, and it represents the smallest change in the value of the pair. For example, in the USD/CAD (US Dollar vs. Canadian Dollar) currency pair, the pip is the last digit in the quote, which would be $0.0001. If the price of the USD/CAD pair changed from 1.34349 to 1.34350, this would mean that the value of the dollar increased by one pip against the Canadian dollar.

It's important to know that a pip is not the actual price of a currency pair, but only a tiny portion of it, and Forex pip movement is typically the smallest movement in an exchange rate. There are also other, more extensive currency units called "lots", where the value of each pip is equivalent to 10, 100, or 1,000 times the standard pip size, depending on the Forex broker.

How to Calculate Forex Pip Value

Typically, Forex pip value is dependent on the currency pair you are trading, the currency the pair is traded in (the quote currency), and the size of your trade. The formula for calculating pip value is as follows: Pip Value = (Contract Size / Lot Size) x (Price x Number of Pips).

The contract size refers to the size of your trade, which is typically measured in lots. One lot is equal to 100,000 units of the base currency. The lot size is the number of units you are buying or selling of the base currency. The price refers to the exchange rate of the currency pair. Finally, the number of pips is the amount that the price has changed since the time of your trade.

An easier way to calculate pip value is to use an online Forex pip calculator. All you need to do is enter the currency pair, the exchange rate, the position size, and the few pips, and the calculator will do the rest. This is much simpler than trying to figure out the complex formula manually.

Сonclusion

Forex trading is ever-evolving and requires a constant learning process. Staying up-to-date on Forex pip movements and knowing the answer to the question, "what is a pip in Forex," is the first step toward trading Forex successfully.