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Learn about pips
What is a pip
A pip is an essential notion in the Forex market. In the Forex industry, the exchange rate rises by pips and falls by pips. As an example, the EUR/USD was at the price of 1.5213, and the exchange rate increased by 1 pip, the price of the currency is now at 1.5214.
EUR/USD=1.5213
1.5213 + 1 pips=1.5214
The average daily fluctuation of the EUR/USD is roughly 100 pips a day. However, on a busy day, the fluctuation reaches 200 to 300 pips, and on a quiet day, the change reaches 50 to 60 pips.
An advantage of the Forex market is that it is a stable market with fluctuation of exchange rates of half percent throughout the day. Traders have the opportunity to limit their risk by applying correct money management techniques which are easy to implement through the use of widely available trading platforms.
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Example
We acquire the transaction made in the base currency and compel this amount by 10,000. For example:
€100,000/10,000= $10
The value of each pip is $10
Now, the Japanese Yen works fairly in a different way. The transaction made in the base currency is divided by 100. For example:
¥100,000/100= ¥1,000
¥1,000/88.00= $11.36 per pip
(assuming that the exchange rate is $88)
At a rate 88.00, the value of each pip is $11.36
