By Sean Hyman, Currency Analyst
www.worldcurrecywatch.com 

Good day traders!

Carry-trades. Spreads. Cross rates. Like anything else, Forex trading has its own lingo. And just like visiting a foreign country, you could get lost if you don’t understand the language.

In fact, I’m convinced that’s what keeps so many investors from diving into this TRILLION dollar market. Most just don’t understand the basics.

And if they don’t understand the basics, would-be currency investors never get a chance to reel in the big profits.

To that end, I periodically decode Forex lingo here in FX University Daily, just to make sure all my “new students” have the basics down.

This way, when you’re ready to trade Forex, you’ll already be one step ahead of the game - you’ll already speak the language.

On to today’s question: What’s a Pip?

Answer: It is the smallest price change that an exchange rate can make. Since most major currency pairs are priced out to four places past the decimal point, when the last digit to the right moves up or down by one increment, that’s a one pip move.

Think of a stock. If a stock increases a penny - and moves from US$50.00 up to US$50.01 - then that stock just made the smallest incremental movement possible.

If you were trading the euro vs. the U.S. dollar (EUR/USD) and that exchange rate moves from 1.2500 up to 1.2501, then it increased one pip. If it fell from 1.2500 to 1.2499 then it decreased one pip.

Have a Forex question? Email me at info@worldcurrencywatch.com.