PiP (short for Point in Percentage) is a standardized unit of measurement that represents the smallest amount by which a currency quote can change. A pip value helps to determine how a one pip change to the exchange rate would change the position value. That’s why pips are often used to reference gains or losses. One pip usually represents 1/100 of 1% in the quoted currency.
Here is an example. Imagine the exchange rate of Bitcoin to Ethereum is the following:
ETH/BTC = 0.019849
The currency pair quote means that to buy 1 ETH it takes 0.019849 BTC. A one pip change in this quote would result in the exchange rate of
ETH/BTC = 0.019949
Note: for some exchange rates pip is not necessarily the last digit after the decimal point.
It means, now it takes MORE BTC to buy one ETH. i.e. ETH strengthens relative to BTC.
To calculate the pip value in terms of ETH:
0.0001 BTC * (1 ETH / 0.019849 BTC) = 0.0050 ETH
That means if we opened a position for 1,000 ETH, one pip improvement in the quote (need more BTC to buy one ETH) would result in approximately 5 ETH profit: 1,000 ETH * 0.0050. The word “approximately” is used because the pip value in ETH will change as the exchange rate fluctuates.
In CEX.IO Broker, spread is shown in pips.