The difference between pips and points in Forex trading

Posted on 2023-04-16

In Forex trading, both the terms "pip" and "point" are used to describe the smallest price movement in a currency pair. However, there is a difference in their value.

A pip is the fourth decimal place in a currency pair, except for the Japanese yen (JPY), where it is the second decimal place. For example, if the EUR/USD currency pair moves from 1.2345 to 1.2346, it has moved one pip. The value of one pip depends on the currency pair being traded, as well as the size of the position.

On the other hand, a point is the smallest price movement in a currency pair and refers to the fifth decimal place. In some cases, traders may use the terms "pip" and "point" interchangeably, but generally, points are used to describe smaller movements within a pip.

For example, if the EUR/USD currency pair moves from 1.23456 to 1.23457, it has moved one point, which is equal to 0.1 pip. However, in practice, many Forex brokers quote currency pairs with a fractional pip, which means that a pip can have up to five decimal places, making points even smaller in value.

It's important for traders to understand the difference between pips and points and to be able to calculate their value accurately in order to manage their risk and profits effectively.

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