When IBM's stock goes from 204.45 to 204.46 it has gone up 1 cent.  In terms of USD this is easy to understand.   When we work with different currencies we have to have a common way to measure the price movement.   That price movement is called a PIP.   When USD/CAD goes from 1.0010 to  1.0011 we say it has increased 1 PIP

Other currencies are quoted with 2 digits instead of 4 and those PIPs look more like our IBM example.  USD/JPY goes from 80.73 to 80.74 then it has increased by 1 PIP.   Many platforms now quote in 5 and 3 digits respectively.   When you see USD/CAD quoted at 1.00105 and it goes up to 1.00113 it still has only gone 1 PIP.   The extra digit gives more detail for people wanting to watch the smallest price movements.

In the prices below the AUDNZD is quoted BID = 1.25879 and the ASK = 1.25953.   The difference between the two, the SPREAD is 0.00074 or 7 PIPs.   (On 5 digit quotes the last number is ignored in PIP calculations)

The other reason for talking about PIPs is because different traders have different account sizes.   If a trader tells you they earned $100 on a trade that may or many not be something to brag about.   If that trader has $10,000 in his account and earned $100 on a 10 lot trade it tells you the price did nothing.   If that trader has $500 in his account and earned $100 on a trade then they really hit a home run.

For this reason traders will talk about the number of PIPs they earned.   A trader might say they earned 30 PIPs on a trade.  That is respectable by all traders.   The person with a $500 account that think about earning $30 dollars and the person with $10,000 can think about earning $3,000 using the same 30 pips.

Simple PIP Calculator

Plus 10 Pips Plus 20 Pips Plus 30 Pips Plus 40 Pips Plus 50 Pips
   X digits
Minus 10 Pips Minus 20 Pips Minus 30 Pips Minus 40 Pips Minus 50 Pips

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