Pips and Pipettes; What exactly are they and how do I identify them when reading a quote?
These two terms are important to understand when reading a forex quote. Misunderstanding the position and value can lead to incorrect risk, profit/loss calculation and overall confusion. The position of each is true for all Forex quotes with the only exception of the Yen crosses.
In Forex we always refer to our profit/loss in pips. The pip is the 4th decimal (0.0001). A movement from 1.3215 to 1.3216 is one pip. The only exception being crosses which have to do with the Yen. The pip is represented by the second decimal (0.01). A movement from 111.46 to 111.47 is one pip.
Pipettes or fractional pips are added to Forex quotes to produce a more accurate representation of price and profit/loss movement. We refer to this as 5 decimal quoting. A pipette is the 5th decimal (0.00001), 1.32155 to 1.32156 is one pipette, with the exception of the Yen which is the 3rd decimal (0.001), 111.465 to 111.466 is one pipette.
Confusion between pips and pipettes is a common occurrence which lead to frustration and confusion. Know the difference!