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
IQOption	5	Stylish & Powerful Platform Trade Bitcoin + 12 Other Top Cryptocurrencies Plus Forex, Options, Stocks & ETF Trading	$10	CySec	Visit Broker IQOption Review	Risk Warning: Your capital may be at risk
FBS Markets.	5	Split second execution No requotes Range of accounts	$1	IFSC	Visit Broker FBS Markets. ReviewROTW	Risk Warning: Your capital may be at risk
XM Group	5	Free forex signals + market research Online education and webinars Fee free withdrawals and deposits	$5	CySEC, IFSC, ASIC	Visit Broker XM Group ReviewROTW	Risk Warning: Your capital may be at risk
AVATrade	5	Trusted, regulated broker with 10 yrs experience Multi award winning company Segregated accounts with leading banks	$100	Central Bank of	Visit Broker AVATrade ReviewT1 ROTW	Risk Warning: Your capital may be at risk
Easy Markets	4.5	Free Guaranteed Stop Loss Segregated funds at top tier banks Fixed spreads & negative balance protection	$100	ASIC, CySEC	Visit Broker Easy Markets ReviewT1 ROTW	Risk Warning: Your capital may be at risk
HF Markets Ltd. (HotForex)	4.5	8 Trading Platforms Spreads from 0.1 Pips $0 fees on deposits	$5	FSC	Visit Broker HF Markets Ltd. (HotForex) ReviewROTW	Risk Warning: Your capital may be at risk
Plus500	4.5	No commissions and low spreads Advanced trading tools Minimal account fees	€100	FCA, CySec :	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. 80.6% 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.
Markets.com	4	Tight spreads without commissions Advanced charting tools	$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.
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.
InstaForex	3.5	'Asia's top broker' Wide choice of leverage options	$1	RAFMM, The Federal	Visit Broker InstaForex ReviewROTW	Risk Warning: Your capital may be at risk
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.
FXPrimus	3	Trusted by 100,000s of traders Fully licensed in the EU by CySec Tight spreads and fast withdrawals	$100	CySec	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 27/02/2020 18:54

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'.