What is a Pip?

Currency pairs that trade on the foreign exchange market are quoted in terms of “pips,” which stands for the “percentage in point.”  The pip is the smallest unit on the exchange, which is 1/100th of one percent.

A pip is often the fifth digit of a currency pair.  The pair EUR/USD would have a pip value five digits in, or the fourth digits after the decimal place.  Thus, if a quote were to read 1.4567, it would be the number 7 which denotes the pip.  If there were a three pip spread, then the bid and ask prices would read 1.4567 and 1.4570.

For pairs with larger numbers, such as the USDJPY, this doesn’t always hold true.  The USDJPY pair has two numbers before the decimal place, and two that follow.  Thus, the “pips place” on the USDJPY quote of 89.01 would be in place of the 1.  If this pair were to have a two pip spread, then the price would be quoted as 89.01/89.03.