Pips investment refers to trading in currencies by using their smallest up and down movements. "Pip" means the smallest denomination in a given currency. It stands for "price interest point," according to ForexOnDemand.com.
Trading
Pips investors monitor prices on foreign exchange, or forex, that show two or four decimal places. For example, prices for U.S. currency usually display to 0.0001 of a dollar. The final digit is called the pip. The size of the pip is based on the currency type, according to ForexShortCuts.com. Prices for the Japanese yen are displayed to 0.01. If buying dollars with yen, one pip equals 0.01. If buying dollars with almost any other currency, a pip equals 0.0001.
Fundamentals
Forex always prices currencies by the pair. Each trade in this market consists of buying one currency while selling another. Forex investors trade when they think the currency they are buying will increase in value against what they are selling. A few pips can result in big gains or losses in trades that involve large amounts of money, according to Jeremy Evans, editor at ForexOnDemand.com.
Standard Forex Account
A pip in a standard forex account represents $10, according to InvestorWords.com. This means that a 100-pip move can mean a gain or loss of $1,000. The typical forex trader has access to large funds to support this level of risk.
