Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency is known as the base currency, while the second currency is called the counter or quote currency. The base currency is the “basis” for the Ask or the Bid. For example, if you Ask EUR/USD you have bought Euros (and simultaneously sold dollars). You would do so in expectation that the Euro will appreciate (go up) relative to the US dollar. FX is traded in lots, which represent 100,000 units of the base currency. If the EUR/USD is quoted at 1.2253, that means that one Euro is currently worth just over $1.22. If the market moves from 1.2253 up to 1.2254 that represents a move of one pip. A pip is the smallest increment a currency pair can move and in the case of the EUR/USD currency pair a pip is worth $10 in a 100K account and is $1 in a mini account.

An FX Trade Example

If you think that the Euro will rise relative to the U.S. Dollar you would Ask one lot of the EUR/USD currency pair.

The EUR/USD is trading at 1.2553 when you Ask it.

The EUR/USD is trading at 1.2674 when you Bid it.

You bought at 1.2553 and sold at 1.2674 for a profit of .0121 or 121 pips.

Each pip is worth $10 in the 100K account.

121 pips x $10 = $1,210 profit
In FX, you also have the opportunity to short (Bid first) a currency pair if you think it will fall in price.

If you think that the Euro will fall relative to the U.S. Dollar you would Bid one lot of the EUR/USD currency pair.

The EUR/USD is trading at 1.2659 when you Bid it.

The EUR/USD is trading at 1.2523 when you Ask it.

You bought at 1.2523 and sold at 1.2659 for a profit of .0136 or 136 pips.

Each pip is worth $10 in a 100K account.

136 pips x $10 = $1,360 profit

While these are profitable examples, remember that ending up on the wrong side of a trade can cost you a lot of money.