Pairs and quotes: what 1.0850 means
What you learn in 3 minutesA currency pair is two currencies written together. EUR/USD means the price of one euro in US dollars. When a chart shows 1.0850, it means one euro costs 1.0850 dollars at that moment.
Where the two-point gap on EUR/USD comes from
| Step | Amount | Note |
|---|---|---|
| Bid (sell price) | 1.0850 | The price at which the broker will buy EUR/USD from you. |
| Ask (buy price) | 1.0852 | The price at which the broker will sell EUR/USD to you. |
| Spread | 0.0002 | 1.0852 minus 1.0850. This is two pips. |
| Value of one pip on one standard lot | 10 USD | 100,000 units multiplied by 0.0001. |
| Spread cost on one standard lot | 20 USD | Two pips multiplied by 10 USD per pip. |
| Spread cost converted to naira | ₦ at the current NGN rate | The USD figure is converted at the rate your broker shows. That rate varies between brokers and changes during the day. |
The broker may quote a different spread depending on market conditions, account type and time of day. Some brokers also charge a commission on top of the spread. Check the fee schedule before trading.
The mistake people make here
Beginners often look only at the big number and ignore the last decimal place. They open a trade and are surprised when the position starts slightly negative. That small negative is the spread, the gap between the bid and the ask. The market must move in your favour by at least that gap before the trade breaks even. Before placing an order, read both numbers on the quote and note the difference. Then work out what that difference costs on your chosen lot size in naira.Check yourself
If EUR/USD moves from 1.0850 to 1.0860, how many pips is that, and what is the value on one standard lot?
1.0860 minus 1.0850 is 0.0010. Divide by 0.0001 to get 10 pips. On one standard lot, 10 pips multiplied by 10 USD per pip is 100 USD, converted to naira at the current rate.
If the spread is two pips and you trade 0.10 lots, what is the spread cost in USD?
One pip on 0.10 lots is 1 USD, because 0.10 of a standard lot carries one tenth of the pip value. Two pips multiplied by 1 USD is 2 USD, converted to naira at the current rate.
A quote shows 1.0850 bid and 1.0852 ask. If you buy at the ask and sell immediately at the bid, what is your loss in pips before any other fees?
You buy at 1.0852 and sell at 1.0850. The difference is 0.0002, which is two pips. That is the spread cost, before any commission the broker may add.