In recent times the trend of investment in the share market is increasing at a fast pace. In the context of trading in the share market nowadays, more people are interested in trading in Forex, which is also known as currency trading. By trading in forex, a person can get many advantages compared to trading in other markets and get an idea of what is a pip in forex.
Some advantages of trading in the Forex Market are given below:
- Generally, the forex market is open 24 hours for five days.
- In this market, traders get more liquidity of assets as compared to other markets. Since in this market, assets can be easily converted into cash. Basically, in the forex market, a large amount of money can be moved in the form of currency (in and out of currency) in the form of spread (the difference between the bid price for prospective buyers and the prospective sellers’ price).
- In the forex market, transaction expense is very low as compared to other share trading markets. And the cost of the transaction is made to be built into the range in the forex market. Generally, it comes in the form of spread.
Understand what is a pip in forex in simple terms
Generally, forex brokers take “Spread” as their payment from the clients for assisting, in trade spreads are measured in pip. The full form of PIP is Percentage In Point, which is also known as Price Interest Point. PIP showcases the smallest or the least measure of any changes in currency pair in the forex market. For many currencies, PIP is the fourth place after the decimal point. For example, pip is $0.000 for US-dollar related currency pair, 1/100th of 1%. This is a well-known fact that movement in the exchange rate is measured in pips. Though it seems to be very easy for anybody to go for thecalculation of the value of a pip by dividing 1/10,000 or 0.0001 by the exchange rate, for example, a share trader who is willing to buy USD /CA may be purchasing US Dollars and selling Canadian dollar at the same time.
Note: Generally, Traders may use the term pip to refer to the spread between the bids and ask prices of the currency pairs and indicate how much a trader can gain or lose from a particular Trade.The movement of a currency pair indicates whether a particular trader has made a profit or loss. For example, if a trader who purchases EUR/USD will gain profit, the Euro increases about the US Dollar.
Thus, you can see that generally, traders often use pips to reference profit and loss. A pip is a unit that measures the amount of change in the exchange rate for a currency pair. This is because most currency pairs are priced in 4 decimal places. For example, if a trader says that I have made 50 pips on a trade. It will generally mean that the trader has a profit of 50 pips, and actual money will depend on the pip value.