Every forex trade happens in pairs with quotes measured in pips. Master these basics and the rest of forex is easier. Here is the plain-language explanation.
Currency Pairs
You always buy one currency and sell another. EUR/USD means the base (EUR) priced against the quote (USD). Major pairs have the deepest liquidity.
Reading a Quote
A quote like 1.0850 means 1 euro buys 1.0850 dollars. The bid is what you sell at; the ask is what you buy at; the difference is the spread.
What a Pip Is
Pip = 'point in percentage' — the smallest standard price move (usually the 4th decimal for most pairs). It determines profit/loss: e.g. 1 pip on a standard lot is roughly $10.
Putting It Together
If EUR/USD moves 20 pips in your favour on one standard lot, you earn about $200 before costs. Spreads, leverage and position size turn pips into real money.
FAQ
What is a pipette?
A fractional pip (5th decimal) used for finer pricing.
Do all pairs use 4 decimals?
Mostly; JPY pairs quote to 2 decimals (1 pip = 0.01).
Related: Forex What/When/How and Trading Signals.