by 
The Curious Bag
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In foreign currency exchange (Forex) one currency is paired with another. The price of the paired currency is measured as a unit with four decimal places. The fourth decimal place is the smallest price change or percentage in point (pip).
Basis Point Value
Pips are very important because it determines the basis point value for trading. The pip is equivalent to 1/100 percent or 0.0001.
Currency Pair
The currency pair quote is a comparison between the first currency (base) and second currency (quote). The pip movement is related to the base currency price, offset by the quote currency against the base currency's strength.
One Currency Pair Exception
One currency pair doesn't use the four decimal point rule. This is the USD/JPY that has only two decimal places seen as 0.01.
Forex Broker
In Forex trading, brokers use a pip spread for each currency pair instead of commissions. This spread can be one or more pips. The broker's spread is his profit when the trade is closed for either a buy or sell transaction.
How The Pips Spread Works
Let's consider a buy trade on EUR/USD at 1.4500 with a brokerage pip spread of two pips. Your position will need to go up three pips to start making a profit (1.4503).
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