In forex trading, a pip is the smallest unit of measurement used to express the change in value between two currencies. It is usually the last decimal place of a price quote and represents the fourth decimal point of a price change. For most currency pairs, a pip equals 1/100 of 1%, or .0001, and the forex quote extends out to four decimal places. However, there are some exceptions like Japanese yen pairs, which go out to two decimal places.

Pips are important in forex trading because they are used to calculate profits and losses when dealing with forex trading transactions. For example, if a trader bought a currency pair for 1.1356 and sold it for 1.1360, they made 4 pips on their trade. To calculate the value of a single pip, traders need to multiply the pip value by their lot size for the dollar value of their profit.

It is also important to note that there are fractional pips, also called "pipettes," which are quoted by some forex brokers beyond the standard "4 and 2" decimal places to "5 and 3" decimal places. A pipette is equal to a tenth of a pip.

In summary, pips are a fundamental concept in forex trading and serve as a significant basis for making trading decisions. They represent the smallest incremental move that a currency pair can make and are used to calculate profits and losses in forex trading transactions.