A pip is a measurement of movement in forex trading, used to define the change in value between two currencies. The literal meaning of pip is ‘point in percentage’, and it is the smallest standardized move that a currency quote can change by. Pips are used by traders to calculate the spread between the bid and ask prices of the currency pair, and express the profit or loss that their position has made.
Most major currencies define a pip as the fourth decimal place, so a one pip change is equivalent to 0.0001. But there are some exceptions, such as the Japanese Yen where a pip is the second digit after the decimal point. Although a pip is normally the second or fourth decimal place, we often display an additional decimal representing a fraction of a pip.
The spread in a currency pair can be quoted in pips, as it is a measure of the market price movement. A pip can be defined as the equivalent of a ‘point’ of movement.