A pip in trading, specifically in forex trading, stands for "percentage in point" and represents the smallest standardized price movement that a currency pair can make. It is used to measure changes in the exchange rate between two currencies and to calculate profit or loss in trading. For most currency pairs, a pip equals 0.0001, which is the fourth decimal place, while for pairs involving the Japanese Yen, a pip is the second decimal place, or 0.01.
Pips allow traders to quantify how much a currency pair's price has moved, set stop-loss and take-profit levels, calculate position size and profit/loss, and manage risk. There are also fractional pips or pipettes, which are one-tenth of a pip, providing more precise price changes.
