What happens when you press Buy
What you learn in 3 minutesThis lesson follows one EUR/USD order through four steps: the order leaves your platform, it gets filled at a price, it becomes an open position, and it ends when you close it. Every cost you pay attaches to one of those four steps, and each one can be worked out in shillings before you click. By the end you will be able to put a number on the cost of a single pip and see where it is charged.
One EUR/USD order in four steps
| Step | Amount | Note |
|---|---|---|
| Step 1: Order | No money moves yet | You send a buy order for 0.10 lots of EUR/USD from your platform. Nothing is charged at this point. |
| Step 2: Fill | Price 1.0850 | The broker matches your order at the market price. A spread may sit between the buy and sell price, and that difference is a cost. |
| Step 3: Open position | 1 pip = KSh 108.50 | One pip on one standard lot is 10 units of the quote currency, so 100,000 x 0.0001 = 10. On 0.10 lots that is 1 unit, converted at 1.0850 to about KSh 108.50. This figure moves as the exchange rate moves. |
| Step 4: Close | Cost depends on the move | If price moves 20 pips against you on 0.10 lots, the loss is 20 x KSh 108.50 = KSh 2,170, before any other charge. |
Your broker may round the pip value, quote a different spread, or add a commission or overnight charge. These vary between brokers, so check the costs on your own account.
The mistake people make here
The common mistake is to treat the four steps as one event and only look at the profit or loss at the end. People then cannot say which part of the cost came from the spread, which from the pip value, and which from a charge added later. Work out the pip value in shillings before you open the position, then check the fill price you actually got against the price you expected. If the two do not match, the difference is a real cost and it belongs to step two, not to your trading skill.Check yourself
You buy 0.10 lots of EUR/USD at 1.0850 and close 20 pips higher. What is the gross profit in KSh, using 1 pip = KSh 108.50 on this size?
20 x KSh 108.50 = KSh 2,170. This is before any spread, commission or overnight charge.
One standard lot of EUR/USD is 100,000 units and one pip is 0.0001. What is one pip worth in the quote currency?
100,000 x 0.0001 = 10 units of the quote currency. Converted at 1.0850, that is about KSh 10.85 per pip on one standard lot.
Your platform shows a buy price of 1.0852 and a sell price of 1.0850. What is the spread in pips and in KSh on 0.10 lots?
1.0852 - 1.0850 = 0.0002, which is 2 pips. On 0.10 lots, 2 x KSh 108.50 = KSh 217.