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Pips

The pip is defined as the smallest increment a currency pair can take. For instance, for the USD/CAD pair, a pip is 0.0001. For the USD/JPY pair a pip is 0.01. A pip is also known as a point.

Recently, many Forex brokers changed their price quotes from a 4 digit quote to a 5 digits one. This practically changed the smallest increment a currency pair can move, but the pips have remained the same.

There used to be a trick that you could use with 5 digits quote to know what a pip is, but it doesn't work everytime anymore:

The trick is simple: take the exchange rate and count 5 digits backwards. For instance, today, the USD/CAD is at 1.04328 (a 5 digit quote). Count 5 digits from the first: 1, 0, 4, 3, 2. The 2 is the 5th digit in the quote and it's at the 4th position after the decimal point, so a pip for the USD/CAD is 0.0001. This is also true for the EUR/GBP, EUR/USD and a lot of other currency pairs.

For the USD/JPY it's a different story. The USD/JPY exchange rate was historically over 100 Yen for a Dollar. This is why the Pip value for the USD/JPY is 0.01. However, the USD has lost value in relation to the Yen, so it's value today stands at 86.693. Even so, a pip is still 0.01, because this used to be the place of the 5th currency in the quote. This is also true for the CHF/JPY and other currencies involving the Yen.
 
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