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Forex Trading - Understanding Pips?

June 3, 2008 | Leave a Comment

Currency exchanges are built around buying foreign currencies. For example, buying Euros with dollars, on the expectation that the Euro will rise against the dollar, allowing you to sell it later (and recoup a profit).

This type of pairing is called a currency pair, and the current price of a pair of currencies (how many dollars it takes to buy one Euro) is called the exchange rate. Exchange rates are measured in ten thousandths of a unit of currency; this “ten thousandth” of a currency unit is called a “pip” in Forex trading. For example, if a Euro costs $1.4328, that means it costs one dollar and 43.28 cents.

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