Description
A pip is the unit you count profit or loss in. Most currency pairs are quoted to four decimal places. Watch for more.
Transcript
A pip is typically defined as the smallest movement an exchange rate can make. Most currency pairs, like the GBP/USD, are quoted to the fourth decimal place, like you see here. Let's look at an example to see what a 1-pip movement would look like for the GBP/USD. Assume that the buy price is currently quoted at 1.5863. If the price then changes to 1.5864, that would be an increase of 1 pip. Likewise, if the price changes from 1.5864 to 1.5863, that would be a decrease of 1 pip.
Not all pairs are quoted to the fourth decimal place, like the USD/JPY, which is typically quoted to the second decimal place. Therefore, in the case of the USD/JPY, a 1 pip move can be illustrated by a price change of 90.93 to 90.94.
It is important to note that FXCM receives prices that are quoted in fractional pips. Fractional pip pricing includes an extra decimal place in the quote, which means the quotes are more precise. For example, we previously mentioned that the GBP/USD is typically quoted to the fourth decimal place. With fractional pip pricing, the GBP/USD is quoted to the fifth decimal place. With FXCM's fractional pip pricing, a price change from 1.58634 to 1.58645, would be 1.1 pips. The more precise quotes allow FXCM to provide you with the best available pricing to it. And for traders, the more precise pricing can mean lowers transaction costs.