Pairs and quotes: what 1.0850 means
What you learn in 3 minutesA quote like 1.0850 is the price of the first currency in the second. It tells you how many units of the second currency you need to buy one unit of the first. In EUR/USD, 1.0850 means one euro costs 1.0850 US dollars. The number moves in the last decimal place, and that place has a money value. On one standard lot of EUR/USD, one pip is 10 units of the quote currency, which is USD. If you convert that to shillings at the current rate, you get the value in KSh. This lesson shows you how to work that out, and how the two prices you see side by side are not a mistake.
Two prices, one euro: 1.0850 and 1.0852
| Step | Amount | Note |
|---|---|---|
| Bid price | 1.0850 | The price at which the broker will buy from you. |
| Ask price | 1.0852 | The price at which the broker will sell to you. |
| Spread | 0.0002 | Ask minus bid: 1.0852 - 1.0850. |
| Spread in pips | 2 pips | 0.0002 divided by 0.0001. |
| Pip value on one standard lot | 10 USD | 100,000 x 0.0001 = 10 units of the quote currency. |
| Spread cost on one standard lot | 20 USD | 2 pips x 10 USD per pip. |
| Spread cost in KSh | KSh 2,600 | 20 USD converted at a rate of KSh 130 per USD. This rate varies between brokers and over time. |
The broker may round the price you see, charge a commission on top of the spread, or quote a different spread when the market is busy. The rate used to convert USD to KSh also varies. Check the exact figures on your own platform.
The mistake people make here
The common mistake is to read the two numbers as a typing error or as two separate prices for two different things. People then trade at the wrong side and are surprised by an immediate small loss. The two numbers are the bid and the ask, and the gap between them is the spread. That gap is a cost you pay as soon as you open a trade. Instead of ignoring it, subtract the bid from the ask, count the pips, and work out the cost in KSh before you place the order.Check yourself
EUR/USD is quoted at 1.0850 bid and 1.0852 ask. What is the spread in pips?
1.0852 - 1.0850 = 0.0002. Divide by 0.0001 to get 2 pips.
Using the same quote, what is the spread cost in KSh on one standard lot if the conversion rate is KSh 130 per USD?
One pip on one standard lot is 10 USD. Two pips is 20 USD. 20 x 130 = KSh 2,600.
EUR/USD moves from 1.0850 to 1.0853. How many pips is that?
1.0853 - 1.0850 = 0.0003. Divide by 0.0001 to get 3 pips.