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What is the difference between pips and points in forex?

Forex trading is an exciting and lucrative venture that requires a deep understanding of the market and its terminologies. One of the most common terms used in forex trading is pips and points, which are often used interchangeably, but they are not the same thing. In this article, we will explore the difference between pips and points in forex.

What are Pips in Forex?

Pips, also known as percentage in points, are the smallest unit of measurement in the forex market. It is used to measure the change in the price of a currency pair. A pip is equal to the fourth decimal place in a currency pair, except for the Japanese yen, where it is the second decimal place. For example, if the EUR/USD currency pair moves from 1.2000 to 1.2005, it has moved five pips.

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The value of a pip is dependent on the currency pair being traded, the price of the currency pair, and the lot size of the trade. For most currency pairs, a pip is worth $10 for a standard lot, $1 for a mini lot, and $0.10 for a micro lot. However, the value of a pip may vary depending on the broker and the type of account traded.

What are Points in Forex?

Points are another unit of measurement in the forex market, and they are used to measure the price change of a currency pair. Unlike pips, points are not fixed and can vary depending on the broker or the trading platform being used. Points are usually used in trading platforms that allow for fractional pip pricing or for trading exotic currency pairs.

For example, if the EUR/USD currency pair moves from 1.2000 to 1.2009, it has moved nine points. In this case, a point is equal to 0.0001, the same as a pip. However, in trading platforms that allow for fractional pip pricing, a point can be as small as 0.00001, which is equal to one-tenth of a pip.

The Difference between Pips and Points in Forex

The main difference between pips and points in forex is that pips are a fixed unit of measurement, while points can vary depending on the broker or trading platform being used. Pips are the standard unit of measurement in the forex market and are used by most traders and brokers. Points, on the other hand, are used in trading platforms that allow for fractional pip pricing or for trading exotic currency pairs.

Another difference between pips and points is their value. Pips have a fixed value depending on the currency pair being traded, while points can have varying values depending on the broker or trading platform being used. Pips are also used to calculate the profit or loss of a trade, while points are used to measure the price change of a currency pair.

Conclusion

In conclusion, pips and points are both units of measurement used in forex trading to measure the price change of a currency pair. Pips are the standard unit of measurement and are fixed, while points can vary depending on the broker or trading platform being used. Both pips and points are important in forex trading, and traders must understand the difference between the two to make informed trading decisions.

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