A pip in forex, short for "percentage in point," is a unit of change in an exchange rate of a currency pair. It is the smallest whole unit measurement of the difference between the bid and ask spread in a foreign exchange quote. Most major currencies are priced to four decimal places, and a pip is one unit of the fourth decimal place. For dollar currencies, this is equivalent to 1/100 of a cent, while for the yen, a pip is one unit of the second decimal place due to the yens value being much closer to one hundredth of other major currencies. In practical terms, a pip is one-hundredth of one percent and appears in the fourth decimal place (0.0001) .
Pips are used to measure the amount of change in the exchange rate of a currency pair and are essential for calculating profits and losses in forex trading transactions. It is important to note that pips do not represent any actual cash value, as the actual value depends on the position size of the trade, which would affect the pip value.
