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.