PIP is a currency trading term.
The term PIP is associated primarily with the foreign currency exchange -- Forex -- market. Forex and the stock market are different types of investing or trading and novice investors should not confuse the two. There is one circumstance where PIP has a meaning for stock market investors.
Stock Symbol
PIP is the stock symbol for PharmAthene, Inc., a New York Stock Exchange-traded company. PharmAthene is a biotechnology company specializing in developing defenses against bio-weapon attacks. In February 2011, PIP was trading for about $3.00 per share. The U.S. stock market uses one to four letter identifiers as unique stock symbols for companies trading on the stock exchanges.
Percentage in Point
In Forex trading, PIP stands for percentage in point. A PIP is the smallest amount a currency value can change in relation to another currency. For most currencies, a PIP is one unit of the fourth decimal point. For currency pairs that are calculated in terms of the U.S. dollar, one PIP is 1/100th of a cent. For example, if the euro/U.S. dollar currency pair is trading at $1.3701, the 1 is the PIP level. If the euro gains a PIP, the new exchange rate is $1.3702.
Forex Traders and PIPs
Forex traders determine the gain or loss on a trade in PIPs. Trading software list the trades results in positive or negative PIPs. The dollar value of a PIP is determined by the size of the trading unit. If the trades are in $100,000 units, each PIP is worth $10. If the trading unit is $10,000; PIPs are worth $1.00 each. The daily price change in currencies is often less than one cent or 100 PIPs per day.
Making Money with Pips
To put up $100,000 to make $10 per PIP would not make sense for a trader. Forex traders use leverage to boost returns on the money invested. In the U.S., the maximum leverage for Forex is 50 to 1. To trade a $100,000 unit, a trader must have on deposit a margin amount of $2,000. If the trader gains 50 PIP s during the day, the $500 profit is a nice return on the $2,000 deposit. It is also possible for a trader to lose a similar amount or more if he guesses wrong on the direction of exchange rates.
