WHY ARE CURRENCY PAIR PRICES DISPLAYED WITH
FIVE DECIMAL PLACES?
Typically in forex, currency pairs display their prices with
four decimal points. A few, such as the Japanese yen,
display two decimal places. No matter what currency
pair you’re trading, the last large number behind the
decimal always represents a pip, the main unit price that
can change for the currency pair. As you trade, you’ll
track your profits (or losses) in pips.
A smaller number behind the pip—this is called a “fractional pip” and offers even
more precise pricing. Sometimes, the fractional pip will be a 0—that is, there will be no fraction of a pip
being quoted at that time. One unit of movement represents one pip. That may seem small and you may be
wondering how forex can be worthwhile if all you’re speculating on is a small fraction of a currency. Since
forex is traded in large volumes, called lots, these fractions of a cent can add up very quickly. Quite simply, the
higher volume you trade the more each pip will be valued.
A lot is a standard unit of measurement. At most forex dealers, one standard lot usually equals 100,000
worth of currency. You are able to trade in intervals of 1,000 units, but you are not required to
invest $1,000 to do so because forex is leveraged. Whenever you place a trade, you start with your desired
volume. Let’s say 10,000 for this next example.
One of the benefits of this market is the ability to trade on leverage. You don’t need $10,000 in your account to
trade the EUR/USD. Currency pairs can have a leverage ratio of up to 50:1. This means you can control a large
position ($10,000) with a small amount of money ($250).
Many traders find the leverage that most forex dealers offer very appealing. Nonetheless, you should know that
trading this way can also be risky. It can produce substantial profits as easily as it can cause substantial losses.