What is a pip in Forex?

If you're looking to get started in Forex trading you'll hear the word pip used a lot, but what does it mean?

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Put simply, a pip, or price interest point, is a measure for the change in price between two currency pairs. It represents the smallest change in a currency quote and is measured to the final decimal place. For most currencies, such as the GBP, this is measured to the 4th decimal place, or 1/100th of 1%, also known as 1 basis point. There are some exceptions to this rule however, such as Japanese Yen pairings which are measured to the 2nd decimal place. Being able use such a precise measure for trades is beneficial for Forex brokers as, if 10 basis points represented a pip, then the market would be extremely volatile.

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Name Product Price per trade Frequent trader rate Platform fees Brand description
Fineco
£2.95
£2.95
Zero platform fee
Your first 50 trades are free with Fineco, until 31/12/2020. T&Cs apply.
Fineco Bank is good for share traders and investors looking for a complete platform and wide offer. Capital at risk.
IG
0% commission on US shares, and £3 on UK shares
From £5
£0 - £24 per quarter
IG is good for experienced traders, and offers learning resources for beginners, all with wide access to shares, ETFs and funds. Capital at risk.
eToro Free Stocks
0% commission, no markup, no ticket fee, no management fee
N/A
Withdrawal fee & GDP to USD deposit conversion
Capital at risk. 0% commission but other fees may apply.
Hargreaves Lansdown Fund and Share Account
£11.95
£5.95
No fees
Hargreaves Lansdown is the UK's number one platform for private investors, with the depth of features you'd expect from an established platform. Capital at risk.
Interactive Investor
From £7.99 on the Investor Service Plan
From £7.99 on the Investor Service Plan
No transfer fees or exit fees. £9.99 a month on the Investor Service Plan
Open an ISA, Trading Account or SIPP you will get £100 of free trades to buy or sell any investment (new customers only).
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
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Data indicated here is updated regularly
Name Product Minimum deposit Maximum annual fee Price per trade Brand description
Moneyfarm stocks and shares ISA
£1500
0.75%
£0
Hargreaves Lansdown stocks and shares ISA
£100
0.45%
£11.95
Hargreaves Lansdown is the UK's biggest wealth manager. It's got everything you'll need, from beginners to experienced investors. Capital at risk.
Interactive Investor stocks and shares ISA
Any lump sum or £25 a month
£119.88
£7.99
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
Saxo Markets stocks and shares ISA
No minimum deposit requirement
0.12%
£8.00
Saxo Markets offers a wide access to a range of stocks, ETFs and funds. Capital at risk.
AJ Bell stocks and shares ISA
£500
0.25%
£9.95
AJ Bell is a good all-rounder for people who to choose between shares, funds, ISAs and pensions. Capital at risk.
Fidelity stocks and shares ISA
£1000 or a regular savings plan from £50
0.35%
£10.00
Fidelity is another good all-rounder, offering a good package at a decent price. Not suited for trading shares. Capital at risk.
Nutmeg stocks and shares ISA
£100
0.75%
£0
Nutmeg offers three types of portfolios. Choose the one that goes with your investment style. Capital at risk.
Legal & General stocks and shares ISA
Legal & General stocks and shares ISA
£100 or £20 a month
0.61%
N/A
Legal & General is a big financial services company which offers insurance, lifetime mortgage, pensions and stocks and shares ISAs. Capital at risk.
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Name Product Minimum investment Choose from Annual fee Brand description
Moneyfarm Pension
£1,500 (initial investment)
7 funds
0.35%-0.75%
Moneyfarm has pensions that are matched against your risk appetite, goals and planned retirement date. Capital at risk.
AJ Bell Pension
£1,000
Over 2,000 funds
0.05-0.25%
AJ Bell has two different pension options, a self managed pension and one that is managed for you. Capital at risk.
PensionBee Pension
No minimum
7 funds
0.5% - 0.95%
Pension Bee is a newbie in the pension market. It helps consolidate your pension plans into one place. Capital at risk.
Hargreaves Lansdown Pension
£100 or £25 a month
2,500 funds
0-0.45%
Hargreaves Lansdown is the UK's biggest wealth manager. It's got three different retirement options. Capital at risk.
Interactive Investor Pension
Any lump sum or £25 a month
Over 3,000 funds
£10/month
interactive investor is a flat-fee platform, which makes it cost effective for larger portfolios. Capital at risk.
Saxo Markets Pension
Saxo Markets Pension
£10
Over 11,000 funds
No annual fee
Saxo Markets gives flexibility and control over your investment strategy. Capital at risk.
Moneybox Pension
£1
3 funds
0.15% - 0.45% charged monthly
Manage your money with an easy-to-use Moneybox app. Capital at risk.
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All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Capital is at risk.

Pipettes

Whether you trade in pips or pipettes will depend on which measure your broker quotes, with some leaving the choice open to you. A pipette is essentially the same as a pip but instead of being measured to 4 decimal places, or 2 in the case of the Japanese Yen pairing, they are measured to 5 decimal places or 3. These are less commonly used than pips but some find the spreads easier to read when they are in the form of pipettes. Just remember that the number of pipettes a currency has moved will be 10x higher than compared to pips.

Determining the value of a pip

The easiest way to understand how calculating the value of a pip works is to use an example:

Lets say that we have an EUR/GBP direct quote of 0.8838. This means that for every €1 euro you have you will get £0.8838 pounds in return. If we then see a one-pip increase in this quote to 0.8839, the value of the euro would rise relative to the pound, as €1 euro would allow you to buy slightly more pounds.

Now, in this example we are looking to buy £10,000 pounds with our euros, the price paid will be €11,314.78 euros ([1/0.8838] x 10,000). If we then see a one-pip increase in this currency pair, the price paid would be €11,313.50 euros ([1/0.8839] x 10,000). In this example the pip value on our £10,000 pounds will be €1.28 euros (€11,314.78 – €11,313.50). If we had bought £100,000 in the beginning, the pip value would become €12.8 euros. You can then multiply your pip value by the amount of pips the currency pair has moved to see whether you have made a profit or a loss. Your pip value will change based off the amount of underlying currency (Pounds) purchased.

If all this maths is making you anxious, don’t worry! Nearly all brokers will work this out automatically, this is just to show how it all works.

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