Forex newbies are often perplexed and phased by the new terms they encounter in the world of currency trading. Hopefully this article will help explain some of the basic terms you’ll come across as a forex beginner.
Lets start with a ‘pip’.
Forex earnings are measured in “pips”. Pip is short for ‘Price Interest Point’. Pips are also known as points. In forex trading, the smallest denomination is 0.0001, in other words four decimal places. This means that very small movements in currency prices can create large profits. A PIP is the smallest unit a currency can be traded in. The actual value of a pip is not a set price. If you are trading with a standard account, a pip is worth $10. If you are trading a mini account, a pip is only worth $1.
The value of a pip changes based upon the size of your account, because the size of your account affects how much currency you can leverage. A standard full size trading account is 100,000 units of the base currency. If you are trading in USD, a standard account has a value of $100,000 USD. A mini lot is 10,000 units of base currency. If you are trading mini lots, you can leverage $10,000. This is why a pip in a mini account is worth less than a pip in a standard full sized account.
It’s always adviseable to start trading with a mini forex account as the deposit required is small, and you have less to risk.
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