Is the unit that measures the smallest variation possible in the price of a currency.
In all currency pairs such variation has four decimals, so that the PIP is 0.0001, except for the Japanese yen, which only work with two decimal places and therefore the PIP = 0.01.
Therefore, the PIP is the last couple of decimal trading in which we work, and represents the unit change in the gain or loss that we have to vary the quotation.
Given a quote, we can calculate the value of a PIP:
If the pair is trading based on the U.S. Dollar:
For example, we have the USD / JPY = 121.30
Calculate the value of a PIP for a quote given by dividing a PIP between this quote:
PIP = 0.01 (recall that for the yen are two decimal places)
0.01 / 121.3 = 0.00008244
Another example: USD / CHF = 1.625
0.0001 / 1.625 = 0.00006154
If the pair contribution is not based on U.S. Dollar:
Example: EUR / USD = 1.3100
0.0001 / 1.3100 = 0.00007633 EUR
Now we have to go based dollar, so the result is multiplied by the price:
0.00007633 x 1.3100 = 0.00009999, this is rounded at 0.0001
In short, the PIP represents the minimum variation in the value of a coin.
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