Forex Trading: What Are Pips?

Considering Forex trading, then get to know the meaning of pips and pip spreads.

If looking to invest in the Forex markets, it may be wise to learn the key concepts associated with pips and pip spreads. Here the article considers the value of pips for most of the world’s major currencies and the concept of pip spreads.
Who Much is a Pip Worth in Forex Trading?
When trading currencies in the Forex market, profits and losses are calculated based upon a system of “pips” which is the smallest measurable movement in the underlying value of a currency.
The word pip itself stands for percentage in points and for most currencies represents a movement of 1/100 of a cent or 0.0001. For instance if trading the GBPUSD pair a movement in price from 1.5000 to 1.5001 represents a movement of one pip. This may sound like a small amount however, when currencies are traded in standard lots (100,000) a movement of just one pip represents a £10 profit or loss.
While this is true for most currency trades, there is one exception which is the Japanese Yen. While most currency pairs are traded on a four decimal system, currencies traded against the Yen are quoted on a two decimal system. As such, one pip represents one cent, therefore if trading one standard lot (100,000 units) on the USDJPY pair a fluctuation of even a single pip would equate to $1,000 profit or loss.
What Are Pip Spreads in Forex Trading?
One of the advantages of trading currencies over that of equities or other instruments is that brokers typically do not charge a “fee”, instead brokers make a profit through what is referred to as the spread. The spread being the difference between the ask and bid price expressed in pips.
For instance, if one where to buy and then sell a currency without any underling movement in the price of the security, an instant loss would be made which is the difference between the ask and bid price in pips, multiplied by the number of units of currency traded.
As such, when trading currencies always look for a broker who offers the lowest pip spreads as this will reduce the real transactional costs associated with any currency trading activity. Typically, those currencies which are frequently traded and offered by a large number of brokers, such as the GBPUSD pair will tend to have a lower pip spread than those which are more exotic and less frequently traded.

So in summary, pips represent the smallest unit movement in any given currency trade, this is a movement of 0.0001 on most currency pairs with the exception of currencies traded against the Yen in which one pip represents 0.01.
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Source : http://www.forexcashblog.com/forex-trading-what-are-pips/