How Important are Pips?

WHAT ARE PIPS?

First off, “PIP” stands for Point In Percentage. In all pairs involving the Japanese Yen (JPY), a PIP is the 1/100th place – 2 places to the right of the decimal. In all other currency pairs, a pip is the 1/10,000th place – 4 places to the right of the decimal.

Let me give you a simple example to make sure we’re all on the same page:  If you bought the EURUSD at 1.0000, then closed your trade in profit at a price of 1.0010 you’ve made a gain of 10 pips.

THE COMMON MISCONCEPTION OF PIPS

You will find a lot of websites and traders mention how many “PIPS they caught this month“. In most cases – and frankly put – this is very misleading as most novice traders incorrectly perceive this as a fair measurement of one’s proficiency.

A PIP is merely a fractional change in price and has no direct relationship to the given trade unless we consider a few factors first.

PIPS are only important once you determine what value the average PIP was relative to the trade at hand and strategy adopted.

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