Pip is short for “percentage in point” and is the smallest increment of trade in Forex. In the Forex market, prices are quoted to the fourth decimal point. For example, if some product in the grocery store was priced at $1.50, in the Forex market the same thing would be quoted at 1.5000. The change in that fourth decimal point is called 1 pip and is typically equal to 1/100th of 1%. Of all the major currencies, the only exception to that rule is the Japanese yen. One Japanese yen is now worth about $0.01; so, in the USD/JPY pair, the quotation is only taken out to two decimal points (i.e. to 1/100th of yen, as opposed to 1/1000th with other major currencies).

In forex trading, investors use leverage to profit from the fluctuations in exchange rates between two different countries. The leverage that is achievable in the forex market is one of the highest that investors can obtain.

Leverage is a loan that is provided to an investor by the broker that is handling his or her forex account. When an investor decides to invest in the forex market, he or she must first open up a margin account with a broker. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading. Standard trading is done on 100,000 units of currency, so for a trade of this size, the leverage provided is usually 50:1 or 100:1. Leverage of 200:1 is usually used for positions of $50,000 or less.

With leverage, traders can buy more currency pair with significantly less money. This will dramatically increase their profit when done right. However, if the trader made a bad decision and the currency pair goes in the other direction, then he will lose money in a very fast pace. It’s possible that the trader lose all his principle in a very short time period. When all his money is lost, the broker will sell all the position of the trader, and there will be nothing left in his account.

So using leverage is like playing with a double-edged sword, as a trader, you must be extremely careful . And remember, never bet too much money on a single currency pair in case things go south and always, be cautious with those extra-high leverages（such as 500:1, or 1000:1 leverages）.