There are lots of things and terms that you will need to learn more about if you are planning to engage in foreign exchange or forex trading. Forex pips are among the trading terms that you will need to understand so you will not find it all too difficult to understand forex news, data, reports, and discussions. A forex pip is short for percentage in point. This refers to the smallest price increment in forex trading and is often used in comparing prices.

To illustrate, forex prices are often quoted to the fourth decimal point. For example, GBP/USD (Sterling pound and US dollars) might be bid at 1.6105 and offered at 1.6109. In this example, the spread is four forex pips wide. In all the currencies, the Japanese yen is the only exception because it is generally quoted only to the second decimal point (JPY/USD = 0.01).

It is quite important that you are able to understand what pips are so you will be able to better determine the significance of spreads…