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Pip, is an acronym for Price Interest Point, and represents the smallest digit in the price of a currency. Pip is also the method by which profit is calculated in a currency deal, and its value depends on the base currency of the pair. Consider this example. A move in the EUR/USD from 1.4877 to 1.4897 equals 20 pips. And a move in the USD/JPY from 89.70 to 89.90 equals 20 pips.

When your trading account is in US Dollars and the U.S. dollar is the base currency, then one pip equals one dollar in a mini account or ten dollars in a standard account. So if you place a trade with one of these currencies and earn 20 pips it would translate to a profit of $20 in a mini account or $200 in a standard one.

If the base currency is not the U.S. dollar, then the value of one pip is equal to one unit of the base currency. For example in the GBP/USD, the pound sterling is the base currency, so one pip is equal to one pound; So if you make 20 pip profits in GBP/USD it would mean a profit of 20 pounds Sterling in a mini account. When you make profits in these currencies, you’re making them in the base currency, which then may be exchanged into the U.S. dollar at the current exchange rate, since your trading account may not be denominated in the base currency.

Summing up, in this article we have learnt what a currency pair is, and what is meant by “bid” and “ask” prices, spread and pip.