What Are FOREX Pips?
The foreign exchange, or FOREX, market refers to the exchange of foreign currency pairs. Currency trading involves buying and selling currency pairs in the FOREX market.
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Description
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The FOREX pip is the smallest denomination that a currency pair can move up or down. Pips are sometimes referred to as points, and, in fact, might be an abbreviation for percentage in point, although the exact origin of the word is a subject of debate.
Pips and Currency Pairs.
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Most currency pairs include four digits following the decimal point, and the last digit is the pip. However, Japanese currency pairs only include two digits after the decimal point, the second digit being the pip.
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Exiting a Trade
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Traders look at the pip to guide their trading strategy. Traders often have a targeted pip in mind so that they will be able to determine their proper exit strategy.
The Future of the Pip
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Advances in electronic trading have paved the way for expanding the role of the pip in the currency market. Advancements included allowing trading to occur down to one-tenth of a pip.
Warning
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FOREX trading can be risky. The best rule of thumb for traders is to not risk money they cannot afford to lose.
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