By Sean Hyman 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.

Best Regards,

Sean

P.S. The easiest way to break into Forex is to learn the language first. That’s why all our currency services come with easy-to-follow manuals that will get you up and trading as soon as possible. Click here to find more about our most popular investment service…

Sean Hyman, “Professor FX” and Long-Time Currency Analyst Explaining How You Can Succeed in the Currency Markets.
Sean Hyman spends his days teaching his fellow professionals in the industry how to trade the $4 TRILLION currency market. Now he brings his 15 years of financial experience to you. From long-term currency strategies, to quick FX-trading moves usually reserved for the professionals, Sean will tell you everything you need to know to succeed in the currency markets.