What is a pip? Pip are “percentage in point” and is the smallest price increment in forex trading. Since most major currency pairs are priced to 4 decimal places (except the Japanese Yen), the smallest change would be reflected in the last decimal point.
Basically, the Forex pip is the measuring stick for gains or losses when trading currency. A currency pair of GBP/USD might be bid at 1.4515 and later offered at 1.4520. This is a spread of 5 pips. So, if you bought a certain number of Pounds at the bid price, and then later sold them for the offered price, your profit would be 5 pips. The amount of profit that would mean for you would be determined by how much you bought and sold for profit.
Profitable Forex trading occurs when you maximize your pips. Thinking long term and logically, to be successful you need to have more pip gains than pip losses in your trading. Let’s be honest, it is impossible to win every time. When everything is said and done, what you want is more pip gains than losses.
The perfect scenario is to buy currency at its lowest value, and then sell it once it has reached its highest value before dropping. But that is easier said than done. There are numerous and varied factors that determine the rise or fall of currency values.
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