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.
The Best Forex Brokers + Trading Platforms
| Broker | Our Rating | Description | Minimum Deposit | Regulation | Visit | |
|---|---|---|---|---|---|---|
 AVATrade |
| $100 | Central Bank of | Visit Broker AVATrade ReviewT1 ROTW | Risk Warning: Your capital may be at risk | |
 FBS Markets. |
| $1 | IFSC | Visit Broker FBS Markets. ReviewROTW | Risk Warning: Your capital may be at risk | |
 IQOption |
| $10 | CySec | Visit Broker IQOption Review | Risk Warning: Your capital may be at risk | |
 XM Group |
| $5 | CySEC, IFSC, ASIC | Visit Broker XM Group ReviewROTW | Risk Warning: Your capital may be at risk | |
 Plus500 |
| €100 | FCA, CySec, ASIC : | Visit Broker Plus500 ReviewT1 ROTW | Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.4% 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) |
| $5 | FSC | Visit Broker HF Markets Ltd. (HotForex) ReviewROTW | Risk Warning: Your capital may be at risk | |
 Easy Markets |
| $100 | ASIC, CySEC | Visit Broker Easy Markets ReviewT1 ROTW | Risk Warning: Your capital may be at risk | |
 Markets.com |
| $100 | CySec | Visit Broker Markets.com ReviewT1 ROTW | Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% 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. | |
 FXPrimus |
| $100 | CySec | Visit Broker FXPrimus ReviewROTW | Risk Warning: Your capital may be at risk | |
 InstaForex |
| $1 | RAFMM, The Federal | Visit Broker InstaForex ReviewROTW | Risk Warning: Your capital may be at risk | |
 OLYMP TRADE | 10 | Visit Broker OLYMP TRADE Review | Risk Warning: Your capital may be at risk |
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'.
English
Featured Brokers
Related Articles
- What is Leverage? Leverage is the technique of using a loan in order to increase the size of a trade or investment, which in turn increases the...
- Social trading has become a popular way for investors to learn how to successfully trade investments just like the top traders around the world....
- What about Demo Trading? Many forex trading sites offer demo trading to get you started. There is nothing wrong with this. The intention is...
- How are Currencies Priced? When the price of a currency is quoted, it is quoted in terms of a pair with another currency. All forex is...
- Margin explained Margin trading is the practice of buying or selling financial instruments on a leveraged basis, which enables clients to open...
- Trading Forex is not, strictly speaking, an “investment,” in the sense that investing in a bond or a stock is. Traditionally an investment should be...
- Before you begin spread betting it is important that you fully understand the risks involved. Spread betting is a leveraged product With any...
- It is possible to make a regular income out of forex trading. To do so, however, means putting a substantial amount of capital on the market, and...
- The number one goal of every investor should be to make money. EToro’s social trading network is designed to help investors to become successful...
- What is financial spread betting? Financial spread betting provides the ordinary investor a tax efficient opportunity to speculate on fluctuations...
Risk Warning
Your capital is at risk. Trading in Forex and Contracts for Difference (CFDs) is highly speculative and involves a significant risk of loss. The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This website is provided for informational purposes only and in no way constitutes financial advice. A featured listing does not constitute a recommendation or endorsement.
About ForexTrading.Company
Forex Trading.Company was established to provide global traders a deep and insightful source of information on forex trading strategies and indicators. With guides for everyone from beginner traders in Bangladesh to advanced strategists in Hong Kong we want the world trading community to benefit from our in-depth broker comparison + reviews, features, and commentary. We list the world's top regulated and authorised brokers suitable for a global audience.
We aim to think global, act local with our website, so that whether you're in Asia, Europe or Africa you can gain from our content on the world's biggest market.
