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.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.