Forex Pips Definition - What are Pips?

Definition:

The word pips is actually an acronym for percentage in point, sometimes also called a price interest point. If that didn't help you, here is a better explanation that is less technical. Pips represent the smallest movement that a currency pair can make. Typically this is equal to 1 basis point, but not always.

If you're trading, the value of the pips for your trade can vary depending on your lot size. Also, the different in pips between the bid and ask is called the spread (see forex spread). The spread is basically how your broker makes money since mostforex brokers do not collect an official commission.

When you trade is positive in pips, you are making a profit. When it's negative, your trade is under water.

Some forex brokers also allow trades to progress in fractional pips. This allows an even tighter control on profits and losses, and most importantly flexibility on spreads.

Examples:

I made a long trade on EUR/USD and closed it for a profit of 30 pips.