[1] It's important because forex trading involves tiny fluctuations in exchange rates, and Pips provide a standardized way to express these changes.
By using Pip, traders can easily understand and discuss price movements, calculate profits and losses,[2] and manage risks more effectively.
The value of a pip depends on the currency pair, the exchange rate, and the size of the trade position (usually measured in lots).
Most retail trading by speculators is conducted in margin accounts, requiring only a small percentage (typically 1%) of the purchase price as equity for the transaction.
[8] Several trading platforms have extended the quote precision for most of the major currency pairs by an additional decimal point; the rates are displayed in 1/10 pip.