Pip Definition. A Pip is a slang term used by forex traders to denote the smallest unit of price for any foreign currency. The phrase “Point” is also occasionally used, but a “Pip” actually stands for “Percentage in Point”, although most forex traders would not know this fact or ever have a reason to know this. Many traders believe a Pip is equivalent to the fourth decimal place, i.e., 0.0001, of the quote for a currency pair. In order to understand the term, one needs to be acquainted with the conventional quoting length for a specific pair. Some quotes do not have four decimal places, and in those cases, a Pip refers to the last decimal place. The term originated as verbal shorthand for traders to communicate immediately the spread or the expectation for gain on a trade. However, quoting services today are generally not mindful of these nuances, and quoting conventions have defaulted to whatever the software programmer set when developing his reporting software.
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