There is a bit of terminology that you will need to be familiar with before you are able to start trading currencies. The most important of these is the word “pip.” A pip is the smallest unit that a currency can be traded in. Pip is short for percentage in point, and is a vital component of trading within the Forex market. Since people of all different types of background trade currencies, it is easiest to compare results in pips gained and lost rather than in dollars earned or spent.
For example, if you are trading the Euro for the dollar, you would express the profit that you realize in pips, rather than in the amount of dollars you earned. This provides for a universal method of comparing results. Pips transcend the amount of dollars earned and can be used on each and every currency that exists. Most currencies track pips down to four decimal points. Instead of pennies earned, the U.S. dollar is measured down to the hundredths of a penny. This makes trading a much more exact art than traditional stock market trading.
The amount of pips remains the same from trader to trader. Whether you are trading with $100, or $1 million, you can track your skill with the pips earned using Forex Arbitrage. Obviously the more you trade with the more you will earn or lose, but pips measure the percentage that prices move for you or against you. In other words, a pip measures your percentage rather than the actual dollar amount that you are trading with.
