A pip is the unit of measurement to express the change in price between two currencies.
Just like a pip is the smallest part of a fruit, a pip in forex refers to the smallest price unit related to a currency. The term ‘pip’ is actually an acronym for ‘percentage in point’.
Professional forex traders often express their gains and losses in the number of pips their position rose or fell.
For example, if the EUR/USD moves from 1.2712 to 1.2713, that 0.0001 rise in the exchange rate is ONE PIP.
All major currency pairs go to the fourth decimal place to quantify a pip apart from the Japanese Yen which only goes to two.
Some brokers only quote to the fourth and second decimal place (for JPY pairs) but others, including AVA Trade, quote to the fifth decimal place of the currency to provide even greater accuracy when measuring gains and losses. This fifth decimal place is what we call a pipette – one tenth of a pip.
So for example if the EURUSD moves from 1.27128 to 1.27129, we can say it has moved one pipette or 0.1 pips (1 tenth of a pip).