Pairs and quotes: what 1.0850 means
The number moves in its last decimal place. That place is called a pip. On EUR/USD one pip is 0.0001. On one standard lot of 100,000 units, one pip is worth 10 US dollars, which is then converted into naira at the current rate.
So the quote is not just a screen number. It is the price at which a trade is opened and closed, and every pip of movement carries a money value in ₦.
The two prices behind every quote, and which one you pay
A quote on EUR/USD is not one number. It is two, written side by side. The lower one is the bid. The higher one is the ask. The page has already told you the gap between them is the spread, but not which side of it you land on when you click buy or sell.
When you buy EUR/USD, you buy at the ask, the higher number. When you sell EUR/USD, you sell at the bid, the lower number. So you always enter on the worse side of the two. That is not a trick played on you. It is how the price is built, and it is the same on every broker's screen.
This means a trade is slightly negative the moment it opens. Say the quote reads 1.0850 bid and 1.0852 ask. You buy at 1.0852. If you closed that second at the bid, you would get 1.0850. You are two pips down before the market has done anything at all. The market must move two pips in your favour just to bring you back to level.
What the last decimal place is worth on the lot size you choose
On EUR/USD the last decimal place is the fourth one after the point. A move from 1.0850 to 1.0851 is one pip. That much is on the page already. What is not on the page is that the money value of that pip depends entirely on how many units you are trading.
A standard lot is 100,000 units. On that size, one pip on EUR/USD is about 10 US dollars. A mini lot is 10,000 units, one tenth of that, so one pip is about 1 US dollar. A micro lot is 1,000 units, so one pip is about 10 US cents. The pip itself never changes. Only the amount you hold changes.
Because your account is in naira, each of those dollar figures is converted at whatever the rate is when the position is open. That rate moves too. So the naira cost of a pip is not a fixed number you can memorise once. It varies with the lot size and with the exchange rate. Check both before you size a trade, not after.
Why the spread you see is not always the spread you get
The gap between bid and ask is not constant. It widens when few people are trading and narrows when many are. It often widens around major news releases and at the quiet hours of the trading day. On EUR/USD a spread of two pips is normal in active hours, but it can be wider than that at other times.
Some brokers also charge a commission on top of the spread. Others build their whole fee into a wider spread and charge no separate commission. Both models exist, and the cheaper one for you depends on how often you trade and how long you hold. There is no single answer that fits every account.
This is why the cost of a trade is not just the spread number you saw when you opened the platform. It is the spread at the moment your order fills, plus any commission, plus the conversion into naira. Read the broker's fee schedule and the contract specifications before you place anything. Those documents state the commission and the lot sizes the broker actually offers.
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.
Doing it once, step by step
You are going to take one live EUR/USD quote and work out, in order, what it would cost you to enter and exit. Do the arithmetic on paper before you touch an order button.
- 01
Read both prices on the quote
Find the bid and the ask on the EUR/USD screen. Write both down, with all four decimal places. Do not round the last one away; that is the place that carries the money.
- 02
Subtract to get the spread in pips
Take the ask minus the bid. On a quote of 1.0850 and 1.0852 the difference is 0.0002. Divide by 0.0001 to get two pips. That is your entry cost before anything else.
- 03
Choose a lot size and find its pip value
Decide how many units you would trade. One standard lot of 100,000 units gives about 10 US dollars per pip. One tenth of that gives about 1 US dollar per pip. Write your own figure down.
- 04
Multiply spread by pip value
Multiply the spread in pips by the pip value of your lot size. Two pips at 1 US dollar per pip is 2 US dollars. That is what the round trip costs you in fees before the market moves.
- 05
Convert the result into naira
Take the dollar figure and convert it at the current exchange rate. The result varies with the rate, so it is different on different days. Note the naira amount beside the trade idea.
- 06
Compare the cost with the move you expect
Ask what move you think the price will make, in pips. If your expected move is smaller than the spread plus commission, the trade starts from behind. If it is not, the arithmetic tells you so before you risk anything.
The mistake most 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.
Questions that come up next
Which price do I actually get when I press buy?
When you buy EUR/USD, you buy at the ask, the higher of the two numbers on the quote. When you sell EUR/USD, you sell at the bid, the lower one. So you always enter on the side that is worse for you. That is how the price is built, and it is the same at every broker.
How much does one pip cost me in naira on 0.01 lots?
A micro lot is 1,000 units, so one pip on EUR/USD is about 10 US cents. That dollar figure is then converted into naira at whatever rate is running while the position is open. The rate moves, so the naira amount is not fixed. Work it out from the current exchange rate before you size the trade.
Why is my position already down a small amount the second I open it?
You entered at the ask, and the price you would get back if you closed now is the bid. The gap between them is the spread, and it sits against you from the start. The market has to move in your favour by that gap before the trade is level. Nothing has gone wrong. It is the cost of opening.
Does the spread stay at two pips all day?
No. The gap between bid and ask widens when few people are trading and narrows when many are. It often widens around major news releases and during the quiet hours. Some brokers also add a commission on top of the spread, while others build the whole fee into a wider spread. Check the fee schedule before trading.
If I hold a position overnight, does that change what I pay?
It can. Many brokers apply a charge for positions held past a certain hour, and the amount varies between brokers. That charge is separate from the spread and from any commission. Read the fee schedule to see whether it applies to the pairs and account type you use.
Can I trade EUR/USD with a small amount of naira?
Lot size decides the pip value, and smaller lots mean smaller pip values. A micro lot carries about one hundredth of the pip value of a standard lot. The spread still applies in full, so a small position pays the same gap per pip as a large one. Size the trade so the spread cost is a figure you are willing to lose.
The words used on this page
- bid
- The lower of the two prices on a quote. It is the price at which you can sell the first currency in the pair. If you close a buy, you close at the bid.
- ask
- The higher of the two prices on a quote. It is the price at which you can buy the first currency in the pair. A new buy enters at the ask.
- spread
- The gap between the bid and the ask, measured in pips. It is the first cost of any trade, and it sits against you the moment you open.
- lot
- The number of units in a position. A standard lot is 100,000 units, a mini lot is 10,000 and a micro lot is 1,000. The lot size sets what one pip is worth in money.
- pip
- The last decimal place the quote moves in. On EUR/USD one pip is 0.0001. Its money value depends on the lot size, not on the pair alone.
- commission
- A separate fee some brokers charge on top of the spread. Others charge no commission and widen the spread instead. Whether it applies varies between brokers.
What to take away
- Every quote has two prices, and you enter on the worse one.
- One pip is 0.0001 on EUR/USD, but what it costs in naira depends on your lot size and the exchange rate.
- The spread is a real cost you pay before the market moves at all.
- The spread widens at quiet times and around news, so the figure you see now may not be the figure you get later.