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What is a pip?

A pip is a measure of movement in forex trading, defined as the smallest movement a currency can make. The literal meaning of pip is “point in percentage” and describes the smallest possible, standardized movement of a currency quote. Pips are typically used by traders to calculate the spread between the bid and ask price of a currency and thus describe the profit or loss that a position is subject to.

For most major currency pairs, a pip is typically equal to 0.01% of a single currency unit, or calculated to the fourth decimal place, so the smallest possible move is equivalent to 0.0001.

However, this is not always the case. Some currencies (such as the yen) describe a pip as 1% of a single currency unit. Thus, for USD/JPY, a move from 120.01 to 120.02 is a single pip move. In this case, the pip is the second digit after the decimal point, i.e. the second decimal place. Although most forex pairs are quoted to two or four decimal places, there are some forex brokers that display an additional decimal number called a “dropper” or “micro-pip.”

Source: https://www.ig.com/at/trading-glossar/pip-definition

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