What Is A Pip for Forex?
The three keys to Forex trading for beginners are practice, practice, practice, study, study, study, and have a very good grasp of basic math. Go onto sites like Forex Firefly and other sites and make sure you read and understand fully what they are saying before you do anything. Do you know how to read a Forex quote? Would you base your life on your ability to read Forex quotes and not get them mixed up. If you see the quote "EUR/USD = 1.2250" do you know if that means that you need to spend 1.2250 USD to buy one Euro, or if that means you need to spend 1.2250 Euros to buy one USD?
By the way, it's the first one. Those numbers are measured in what is called 'pips'. They are a fraction of the value of money, and you need to be able to understand them before you try anything. If the pips between two currencies changes from 1.2250 to 1.2251, the shift from the zero to the one is one pip. The pip always refers to the fourth decimal place in any quote other than those involving Japanese Yen. If you see a Yen equation with three decimal places, the changes past that point are fractional pips. If you see an equation that has five digits, the fifth digit is a fractional pip, often called a pipette.
In some ways, you could say that pips are the true money of the foreign exchange market. There are equations you can use to find out what the pip value is of a currency at any given time of day, but an easier option is to get online and use a pip value calculator. Many brokers will also worry about the pip values for you, and if you have a broker that does three decimal places on the Yen or five decimal places on everything else, you're one step ahead of people that don't.
