FX Basics: Pips & Spreads Explained

What are PIPS?

A PIP is an acronym for percentage in point.

This percentage in point represents the smallest value of measurement for currencies on the forex market.

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Broker	Our Rating	Description	Minimum Deposit	Regulation	Visit
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ETX Capital	4	Choice of two professional trading platforms – TraderPro and MT4 Free trading course for deposits over £1,000 Choice of Forex, CFDs, Spread Betting and Cryptocurrencies	€100	FCA	Visit Broker ETX Capital ReviewT1	Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
FBS Markets.	4	Split second execution No requotes Range of accounts	$5	IFSC	Visit Broker FBS Markets. ReviewROTW	Risk Warning: Your capital may be at risk
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EXNESS (NZ) Ltd.	3.5	Instant fund withdrawals - no commissions Tight spreads from 0.1 points Unlimited leverage	-	FDR (NZ), CySEC	Visit Broker EXNESS (NZ) Ltd. ReviewT1 ROTW	Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74-89% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
HF Markets Ltd. (HotForex)	3.5	8 Trading Platforms Spreads from 0.1 Pips $0 fees on deposits	$5	FSC & CySEC	Visit Broker HF Markets Ltd. (HotForex) ReviewROTW	Risk Warning: Your capital may be at risk
FXPrimus	3	Trusted by 100,000s of traders Fully licensed in the EU by CySec Tight spreads and fast withdrawals	$100	FSC Mauritius	Visit Broker FXPrimus ReviewROTW	Risk Warning: Your capital may be at risk
OLYMP TRADE	2		10		Visit Broker OLYMP TRADE Review	Risk Warning: Your capital may be at risk

Broker rankings last updated 09/12/2018 13:19

Unlike dollars and cents which are calculated up to two decimal places, the currencies on the forex market are calculated up to the fourth decimal point.

The smallest move that a PIP can have is .0001, which represents 1/100th or commonly referred to as 1 basis point.

The one exception to the fourth decimal point is the Japanese Yen, which is only calculated up to two decimal places.

What is The Spread?

PIPs are calculated in terms of currency pairs.  Unlike stocks or futures which trade solely based on their own evaluation, the forex market compares the value of two currencies to arrive at a Bid and an Ask price, which is expressed in terms of PIPs.

So, for example, if the USD/CHF is worth 1.15351, then that means that $1 US Dollar is worth 1.1531 Swiss Francs.

But the price is different for the bid and for the asking. So, if the price of the EUR/USD forex pair moved from 1.33800 to 1.33920, it is said to have climbed by 12 ‘pips’ (92-80=12).

To show the BID/ASK prices, another example would be EUR/USD dealing at 1.33800/1.33808 (in this case the spread is 0.8 pips or 0.00008). The exceptions to this are the JPY pairs which are quoted to just 2 decimal places.

A USD/JPY price of 97.41/97.44 displays a 3 pip 'spread'.