Percentage In Point or a pip is the smallest price move that an exchange rate can make on the basis of the market conventions. As most of the currency pairs are priced up to the four decimal places, this is equal to 0.01 of 1 percent.
For example, even a slight move in the USD/CAD currency pair can make it $0.0001 or one basis point. A pip is an important concept of Foreign Exchange. The currency pairs are exchanged as quotes through bids and asked out as quotes that are much accurate to four decimal places.
In much simpler words, the traders sell or buy currency whose value is in a relationship with another currency. Take an example of a trader who is willing to buy USD/CAD pair would be doing both the things together that are to purchase US Dollar and sell out Canadian ones. He would use pips to refer between both the bid and ask price of the currency pair to show up the gain and loss from the trade.
Movement of the exchange rates are measured by the pips, the smallest change for a pair of four decimal places is just 1 pip. The value can be calculated by dividing 0.0001 from the exchange rate.
Let’s consider a trader who just bought Yen by selling USD/JPY at 112.07. The trader would lose 3 pips on trade if closed at 112.11 but the profits by 6 pips if the position gets closed at 112.01.
The movement of a pair determines whether a trader made a profit or loss from the positions. A combo of devaluation and hyperinflation is capable to push exchange rates to the point where they become manageable. Also, this impacts the consumer to force them to carry loads of cash which can make trading unmanageable.