Currencies are "traded", one against another, in what are known as "currency pairs", and what this means is that, when one half of the pair increases in value, the other half decreases, and of course, this works both ways round.

This currency movement is recorded in decimals, with each decimal being referred to as a "Forex pip", or just "pip", for short. To illustrate this, the difference between 1.4624 and 1.4625 is one "pip".

So, if you're looking for a Forex pip definition, here it is: in Forex, 1 pip is one hundredth of one percent. (In case you were wondering, a pip in Forex terms is an acronym for "percentage in point".)

One common currency pair is the GB Pound and the US Dollar, which would typically be written as GBP/USD.

A currency value in this currency paid might be shown as 1.4624 (e.g. there are 1.4624 US Dollars to one Great British Pound).

If the dollar then went down 100 Forex pips, from 1.4624 to 1.4524, then that would mean that there were now only 1.4524 USD to the GBP.

Conversely, and because of the way these currencies are paired, then if the GBP moved up five pips, that would mean, by definition, that the USD had gone down by the same five pips.

So, for example, a five-pip movement in the GBP/USD might be 1.4624 to 1.4629.

By the way, you should be aware that it's not unusual for any currency pair to move by as much as 100 pips during a single day of trading.

So, how does this relate to trading?

Well, when you enter a trade in Forex, pip values are whatever you want them to be - from as little as ten cents to as much as hundreds of dollars.

What this means is that, if you value your pips at $10 a pip, and your trade increases by five pips, then the profit on that trade would be $50 (i.e. five pips, each at $10).

But if you only put a value of $1 on each pip, then that same five-pip movement would only give you a profit of $5 (i.e. five pips, each at $1).

And if you wanted to gain $500 from that same five-pip movement, then you would need to place a value of $100 on each pip (i.e. five pips, each at $100).

So you can see that the higher the value you assign to each pip, the more each pip movement is worth to you. This is known as leveraging pip value against pip movement.

In normal trading, you would buy something at one price, and then hope to sell it at a higher price and thence make your profit.

Unfortunately, Forex trading is a little more complicated than that, largely because you can take part in "buy trades" and "sell trades".

That's why, rather than talking about "buying" and "selling", Forex traders talk about "entering" and "exiting" trades instead.

In a "buy" trade, you therefore "enter" the trade at a certain level. When the price rises, you then "exit" the trade, and the difference between the "enter" price and the "exit" price represents your profit.

In a "sell" trade, on the other hand, you still "enter" trade at a certain level, but if the price falls and you then "exit" that trade, the difference between the "enter" price and the "exit" price still represents your profit.

So, when trading on Forex, you can make money regardless of whether the markets are rising or falling, depending on whether you choose to enter a buy trade or a sell trade.

When entering a trade, there are two things that you have to decide.

Firstly, you need to decide whether you're going to enter a buy trade or a sell trade.

And secondly, you need to decide how much each pip should be worth, i.e. the Forex pip value for just that trade.

Based on the above, then when you enter a buy trade, you clearly want the currency to rise in price, whereas with a sell trade, you want it to fall instead.

And if things work out the way you want, that's great.

But what happens if the currency goes the opposite way?

Well, you have a couple of options - you can exit the trade manually at any time, or you can also pre-set what's called a "Stop Loss", which will automatically exit the trade should the price reach a certain point. The Stop Loss is therefore a valuable tool that can prevent runaway losses.

Once you get your head around these few basic concepts, it's actually all pretty easy stuff!

And if you still need a bit of additional help, you can either read one of our recommended Forex trading books, and if you then decide that you'd rather take a hands-off approach, you can always try one of the many Forex robots, which will automate your trading for you, or maybe consider a managed Forex trading account.

Don't have time to learn the ins and outs of Forex trading secrets? Don't have faith that those Forex robots won't bleed your account dry?

Well, there is another option - provided you have ten minutes (or less) a day to spare to check your email and place a trade by following signals so simple that even an eight-year kid could understand?

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