Point

In forex trading, a “point” refers to the smallest unit of price change. Point is also known as a pip and is mainly used in currency pairs.

Pip stands for “Price Interest Point” and represents the precision of buying and selling prices in the forex market. A pip signifies the smallest change in the price of a currency pair up to the fourth decimal place. For example, an increase in the EUR/USD pair from 1.2345 to 1.2346 represents a one-pip increase.

The value of a pip can vary depending on the decimal places in the currency pair quotation. For instance, in the USD/JPY pair, the pip value is calculated based on the second decimal place in the quotation. If the USD/JPY pair rises from 109.50 to 109.51, it represents a one-pip increase.

Pip plays an important role in calculating profits and losses in forex trading. Depending on the trading volume (lot) size, the pip value determines the amount of profit or loss. For example, in a one-lot trade, a one-pip price movement represents a profit or loss of 10 units of the base currency (usually the US Dollar).

Some forex brokers consider the fifth decimal place when calculating the pip value. In this case, the pip value becomes a smaller unit, representing a more precise price movement in currency pairs with narrower spreads.

Pip is a fundamental term used to measure price movements and evaluate trading strategies in the forex market. Market participants consider pip value when formulating risk management strategies and make trading decisions based on pip movements.

In summary, a point or pip refers to the smallest unit of price change in forex trading. Pip value can vary depending on the decimal places in the currency pair quotation and plays a significant role in profit/loss calculations.