TRADING BASICS

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TRADERA
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TRADING TERMINOLOGY

PIPS

A common term you’ll hear in the trading world is “pips”. A pip is defined as the smallest

possible change of an exchange price. Pips are very important because you will be calculating

them for each trade that you partake in as they essentially represent how much profit or loss

you will have. The exchange rate for any given currency pair may be expressed using several

different decimal places, so it’s important to note that pips are usually calculated without

using the last decimal position. The last decimal position of price is a fraction of a pip, or a

“pipette”. Let’s look at an example:

Question: Let’s say you are analyzing the EUR/NZD cross currency pair and you note that

the current exchange rate is 120.325. You believe price will move up to 120.789. If you take

this trade and it wins, how many pips will you have caught?

Answer: Remember, pips are usually calculated without using the last decimal point. So, you

have 120.789 (the 9 is a fraction of a pip) – 120.325 (the 5 is a fraction of a pip) which will

give you a total of 46.4 pips caught.