Pip Definition

A lot of blogs or YouTube tutorials would tell you, a Pip is considered to be the smallest price movement that a currency pair can make. Unfortunately, this can be a bit misleading when you’re preparing yourself to start trading forex. This simple explanation would lead you to believe that this is the change of the last digit in the quote that you see in the trading platform. While this definition is true if you are looking at the exchange rates of your bank or a travel agent, it doesn’t really correspond to forex trading with an online broker.

For currency pairs like EUR/USD that are quoted by your bank with 4 digits after the decimal, the smallest the price can move is if the fourth decimal moves up or down by one. However, a trading platform like cTrader shows 5 decimals on EUR/USD. This doesn’t mean that a Pip is different, the Pip value in cTrader is still the fourth decimal. The fifth digit is known as a Point and this is one-tenth of a Pip.

Does this mean that the fourth digit is always the Pip? Nope. In pairs like USD/JPY, the Pip position is the second digit and the third is the Point.

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