// TRADING TERMINOLOGY
What is Pip?
A "pip" (percentage in point) is the foundational unit of measurement in forex trading, representing the smallest standard price move in an exchange rate.
In-Depth Explanation
If you cannot calculate pip value instantly, you have no business trading live capital.
For most currency pairs (like GBP/USD or EUR/USD), a pip is the fourth decimal place. A move from 1.2500 to 1.2501 is exactly one pip. For pairs containing the Japanese Yen (JPY), the pip is the second decimal place (e.g., a move from 150.00 to 150.01).
Understanding pips is the absolute bedrock of risk management. Without knowing exactly how much a 10-pip stop loss will cost you in cold, hard cash, you are not trading—you are gambling blindly.
PETE'S TIP
"Modern brokers use 5-digit pricing (or 3-digit for JPY). The final digit is a "pipette" (a tenth of a pip). Do not confuse pipettes with pips when setting your stop loss in MT4/MT5, or your stop will be 10x tighter than intended."
Practical Example
"If you go long on GBP/USD at 1.2600 and your take profit is hit at 1.2650, you have captured 50 pips of profit. If you risked £10 per pip, that is a £500 gain."
Master the language of risk
Knowing the terms is just the start. Learning how to apply them is where the edge is found.
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