There are many different terms used in the Forex but the interesting fact is that there are far less terms compared to other forms of trading. We advice you to learn these few words as they will surely help you along your way. As a matter of fact, one of the first things you should focus on is the meaning of the word PIP.

What is a PIP?

A PIP is essentially a fourth decimal number that determines the value of a currency compared to another.The interesting thing is that they are not pieces of information in an absolute sense; what the PIP do is to measure the movement of that a pair of currencies over a given period. In other words, if a pair of currencies begins at 1.0000 and ends at 1.0010, there are ten PIPs of advantage. “PIP” is not really a technical term or a mathematical term, but it is a term that refers to the circulaton of money of the given pair. Despite not being a technical term, the PIP word is important to learn because the variations in the PIP are the basis in the Forex trading.

PIPs and Money

Another thing to keep in mind on the PIPs is that they follow a specific scheme in the money conversion. They refer to the quantity of money that one gains in a successful trade and the quantity that one loses in a failure. For this, it is important understanding the conversion taxes between PIP and money. The mathematical formula is rather complex, but when the negotiation on the EUR / USD occurs, it is simple. If you are trading with a margin of  $10000, the equivalent PIP will be of $1. Instead, if you are trading with a margin of $100000, the PIP will be of $10.