Pip (Forex)

How it works

In currency trading, a pip (short for "percentage in point") is the standardised unit for measuring how much an exchange rate has moved. For most currency pairs it is the fourth decimal place — so if EUR/USD moves from 1.1050 to 1.1051, that single tick is one pip. For pairs involving the Japanese yen, a pip is conventionally the second decimal place because of the yen's smaller per-unit value.

Because forex moves in tiny increments, pips give traders a consistent, comparable way to quote changes, spreads and gains or losses. A "pipette" is a tenth of a pip, used by brokers for even finer pricing.

In India

For Indian residents, forex trading is tightly regulated. Under FEMA and RBI/SEBI rules, individuals may legally trade only INR-based currency pairs (such as USD/INR, EUR/INR, GBP/INR and JPY/INR) on recognised exchanges like the NSE and BSE. Trading foreign-to-foreign pairs (like EUR/USD) through offshore brokers is not permitted for residents and can attract penalties.

In USD/INR futures on Indian exchanges, the pip-equivalent tick size is set by the exchange, and profit or loss is calculated per tick per lot of the contract you hold.

Why it matters

Pips let traders quantify and compare moves, costs and risk with precision. Broker spreads (their effective charge) are quoted in pips, and disciplined position sizing and stop-losses are set in pips too — so the concept is genuinely fundamental to understanding what trading actually costs you over time.

Common mistakes

The single biggest mistake is trading illegal offshore forex platforms that aggressively advertise to Indians — these are unregulated, frequently outright scams, and they violate FEMA, exposing you to legal penalties and total loss of funds. Stick strictly to exchange-traded INR pairs. And don't confuse a pip with a rupee — translating pips into actual rupee P&L always depends on your lot size and the specific pair.