When you’re trading in the Forex market, it’s important to be aware of what pips and big figures are. Pips represent the smallest price change that a currency can make, and big figures refer to the number of digits after the decimal point. In this guide, we will answer some common questions about pips and big figures, as well as provide some useful tips on how to use them effectively in your trading.
Pips
Pip is an abbreviation for “percentage in point” or “price interest point”. A pip is the smallest price change that a currency can make. For most currencies, a pip is equal to 0.0001 of the currency’s quote. For example, if the EUR/USD pair is quoted at $0.9950, a move from $0.9951 to $0.9952 would be one pip.
Big Figures
The big figure refers to the number of digits after the decimal point in a foreign exchange rate quote. In most cases, this is four digits. However, some pairs are quoted with five or three decimal places depending on market conditions and liquidity.
For example, assume that you see the following quotes:
EUR/USD = $0.9950
GBP/USD = $0.6490
The big figure for EUR/USD is 0.99 and the big figure for GBP/USD is 0.649.
What’s the difference between pips and big figures?
While both pips and big figures are used to measure price changes in the Forex market, they serve different purposes. Pips are typically used by traders to calculate their profits or losses, while big figures are primarily used by banks and other market participants to quote prices.
Here’s an example: Assume you buy 100,000 Euros for $0.995 per Euro and then sell them when the price reaches $0.999 per Euro. Your profit would be 50 pips (0.004 * 100,000).
Now, let’s say you want to buy British pounds for $0.649 per pound and then sell them when the price reaches $0.651 per pound. In this case, your profit would be two big figures or 20 pips (0.002 * 100,000).
While pips are used to calculate profits and losses, big figures are primarily used for quotation purposes. For example, if a bank is quoted at “five-six”, this means that the bid price is five big figures and the asking price is six big figures.
What’s the difference between a pip and a point?
In the financial markets, the term “point” is used to describe various price units. For example, in the stock market, a point usually refers to $0.01 per share. In the futures market, a point typically equals $0.0001 per contract.
In the Forex market, the term “pip” is used instead of “point”. As we mentioned earlier, a pip is equal to 0.0001 of the currency’s quote.
So, what’s the difference between a point and a pip? While both terms represent small price changes in different markets, pips are specific to the Forex market and are used to calculate profits and losses, while points can be used in various markets and don’t have a set value.