What are spreads and pips in forex?

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What are spreads and pips in forex?

Spreads
The difference between the bid and offer prices is called the spread. The width of the spread depends on many different factors, including, but not limited to, the underlying liquidity and volatility of the currency pair, the time of day, and the notional trade size, which is the actual amount of currency that you are buying or selling.

Pips
A pip stands for "percentage in point" and is used almost exclusively in forex trading. Most forex pairs are quoted in terms of pips. So, instead of saying that the price in EUR/USD changed by 0.0010, a forex trader will say the EUR/USD price changed by 10 pips. Most currency pairs define a pip in the 4th decimal place, but, for example, currency pairs, including the Japanese yen (JPY), will have pips denoted in the 2nd decimal place. Gold (XAU) also has pips denoted on the 2nd decimal place. Many crosses are quoted in deci-pips, meaning an extra decimal is added. It represents one-tenth of one pip, and this is the smallest amount that a price can move.

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