Pairs and quotes: what 1.0850 means
What you learn in 3 minutesThis lesson explains what a currency pair quote means and how to read the number on a trading platform. A quote such as AUD/USD 0.6640 is the price of one Australian dollar expressed in United States dollars. The last decimal place is called a pip, and on a standard lot it has a money value in A$ that depends on the current rate.
Reading a two-point gap on AUD/USD at 0.6640
| Step | Amount | Note |
|---|---|---|
| Bid price | 0.6640 | The price at which the platform would sell the base currency for you. |
| Ask price | 0.6642 | The price at which the platform would buy the base currency for you. |
| Spread | 0.0002 | The ask minus the bid, equal to two pips. |
| Value of one pip on one standard lot | A$10.00 | 100,000 units multiplied by 0.0001, converted at the current rate. On AUD/USD the quote currency is USD, so the USD figure is converted to A$ at the rate shown. |
| Cost of the spread on one standard lot | A$20.00 | Two pips multiplied by A$10.00 per pip. |
The broker may round the pip value, charge a commission on top, or quote a different spread depending on the account type and market conditions. These figures vary between brokers.
The mistake people make here
A common mistake is to treat the last digit as a whole number rather than a fraction of a cent. On AUD/USD, a move from 0.6640 to 0.6641 is one pip, not one cent. The second mistake is to ignore the spread when calculating a result, so a trade that looks profitable on the chart may be a loss after the two-point gap is paid. Always subtract the spread from the entry price before judging a trade, and check the pip value in A$ on the platform rather than assuming it is fixed.Check yourself
If AUD/USD moves from 0.6640 to 0.6650, how many pips is that, and what is the value on one standard lot in A$?
The move is 0.0010, which is ten pips. At A$10.00 per pip on one standard lot, the value is ten multiplied by A$10.00, which equals A$100.00.
A quote shows a bid of 0.6638 and an ask of 0.6640. What is the spread in pips, and what does it cost on one standard lot in A$?
The spread is 0.0002, which is two pips. At A$10.00 per pip, the cost is two multiplied by A$10.00, which equals A$20.00.