You have probably heard that Forex currency rates fluctuate on a constant basis.  Day and night currencies go up and down, quite quickly sometimes.  This is all part of Forex and it is the characteristic that makes trading Forex a 24 hour a day, 7 day a week endeavor… potentially anyway.  Very often the changes that are seen in currencies are small and subtle.  In fact, rate changes are often so small that they are measured in units that are even smaller than the number one.  Currencies are measured using decimals.  Notice how you usually see currency rates written with a decimal point and then two to four numbers after the decimal point.

Currency rate changes are often so small that they are measured in Pips.  A Pip is an extremely small unit of measurement.  1 Pip basically pans out to be the equivalent of 0.0001.  The smallest possible rate change that can be seen or measured in currencies is the Pip.   Here is an example of pips in a standard currency pair:  USD/EUR is 1.232/1.239.  This figures used in this example have what is known in Forex as a 7-pip spread – they have a spread of 7 pips; the difference between the two figures.

The spread is the difference in value between the buy and the sell rate of a currency.  The buy price is at times also called the ‘bid’ and the sell price is also known as the ‘ask’.  The spread is an amount that is set by the market maker.  When you understand Forex at a deeper level, you will learn that it is the market maker that takes the biggest risk in a Forex trade. They make the trade possible and they place that they make their profit is in the spread.   The larger the spread, the more money they make.

There is always a spread or a difference between the buy and sell rates.  New Forex traders often fail to realize that if you purchase a currency and hold it for as little as 5 minutes, and even if it there is no change in the currency rate, that you will still lose money if you sell it.  This is because currencies are never bought and sold at the same price.  Currencies always sell at a lower rate than they are purchased at.