Pairs and quotes: what 1.0850 means
Base currency and quote currency in the pair
The pair AUD/USD is written with a slash. The code before the slash is the base currency. The code after the slash is the quote currency. The quote is the price of one unit of the base, stated in units of the quote. So AUD/USD 0.6640 means one Australian dollar costs 0.6640 United States dollars. The base is what you are buying or selling. The quote is what you pay or receive.
When you buy AUD/USD, you buy Australian dollars and pay United States dollars. When you sell AUD/USD, you sell Australian dollars and receive United States dollars. The platform shows one number for the pair, not two separate prices. That number is always the price of the first currency in the second. If the pair were written USD/AUD, the same market would be read the other way round. The order of the codes is not decoration. It tells you which currency the number describes.
Some platforms list the pair as AUDUSD with no slash. The meaning is unchanged. The first three letters are the base. The last three are the quote. On a mobile screen the slash may be dropped to save space. Read the codes in order and you will not misread the price. The number beside the pair is the quote. It is not a percentage, an index or a score. It is a price in the quote currency.
The decimal places and the pip
The quote 0.6640 has four decimal places. The last of those places is the pip. A pip is the smallest conventional step in the quote for most pairs. On AUD/USD, one pip is 0.0001. The digit in the fourth decimal place changes by one when the price moves by one pip. The digits before it change far less often. A move from 0.6640 to 0.6641 is one pip. A move from 0.6640 to 0.6650 is ten pips. The last place is the one that moves most.
Some brokers show a fifth decimal place on AUD/USD. That fifth place is a fraction of a pip, often called a pipette. It is not a second pip. If the platform shows 0.66403, the pip is still the fourth decimal place. The third digit after the point is a fraction of that pip. Reading a five-digit quote as if it had four places makes every move look ten times larger. Check how many places your platform shows before you count anything.
The money value of one pip depends on the lot size and the pair. On a standard lot of AUD/USD, one pip is worth about A$10.00 when the account is funded in Australian dollars. That figure is not fixed for every pair. It varies with the exchange rate used to convert the profit or loss into your account currency. It also varies between brokers. The platform shows the pip value for the instrument you have open. Read it there rather than assuming a number.
Bid, ask and the spread on the platform
A live quote has two sides. The bid is the price at which you can sell the base currency. The ask is the price at which you can buy it. The ask is normally the higher of the two. The gap between them is the spread. If the bid is 0.6638 and the ask is 0.6640, the spread is 0.0002. That is two pips. The spread is not a fee charged separately. It is built into the prices you trade at.
You buy at the ask and sell at the bid. That means a new position starts slightly behind the market. If you buy AUD/USD at 0.6640 and the bid is still 0.6638, closing immediately would realise a loss of two pips. The price must move in your favour by more than the spread before the position shows a gain. This is why a chart that looks flat can still produce a small loss. The spread is paid on entry and again on exit, in the sense that you cross it both ways.
Spreads vary between brokers and between account types. They also widen when the market is quiet or when a news release is due. A spread of two pips on AUD/USD is an example, not a standard. Some accounts charge a commission on top of a narrower spread. Others include the cost in a wider spread. The platform shows the current bid and ask. Use those two numbers, not a remembered figure, when you work out what a trade costs.
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$10.00 per pip. |
The broker may round the pip value, charge a commission on top, or quote a different spread depending on the account type and market conditions. These figures vary between brokers.
Doing it once, step by step
The following steps walk through reading a quote, counting a move, and checking the cost of the spread on a demo platform. Do them in order, once, on a single instrument.
- 01
Open the AUD/USD chart
Find the instrument list on your platform and select AUD/USD. Open the chart view, not the order ticket. Set the time frame to one hour so the price changes are visible. Note the current quote in the top corner.
- 02
Write down the quote and mark the pip
Write the number exactly as shown, for example 0.6640. Count the decimal places. The fourth place is the pip. If your platform shows five places, the fourth is still the pip and the fifth is a fraction of it. Say the value aloud as a price in United States dollars per one Australian dollar.
- 03
Find the bid and the ask
Look for two prices beside the pair, or open the order ticket without submitting anything. One is the bid and one is the ask. The ask is the higher. Subtract the bid from the ask to get the spread in decimal form. Divide by 0.0001 to convert it to pips.
- 04
Calculate the pip value shown on the platform
Find the pip value field for AUD/USD on a standard lot. It is usually shown in the account currency, which is A$ here. Write it down. Do not assume it is A$10.00. If the field is missing, check the contract specifications page for the instrument.
- 05
Work out the spread cost
Multiply the spread in pips by the pip value in A$. With a two-pip spread and A$10.00 per pip, the cost is A$20.00 on one standard lot. That is the amount the price must recover before the position breaks even. Compare it with the size of the move you expect.
- 06
Repeat on a second pair
Choose another pair, such as EUR/USD, and repeat the same five readings. The pip may be in a different decimal place. The pip value in A$ will almost certainly differ. This shows that the figures are specific to the instrument and the account, not universal.
The mistake most 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$20.00.
Questions that come up next
Why does the platform show two prices for the same pair
The lower number is the bid. It is the price at which the platform will buy the base currency from you. The higher number is the ask, the price at which it will sell the base currency to you. The gap between them is the spread, and it is the platform's charge for making the trade. You enter at the worse of the two numbers and exit at the other, so the spread is paid on both sides.
What does the number beside the pair actually measure
It measures the base currency in units of the quote currency. On AUD/USD, the number is how many United States dollars one Australian dollar is worth. It is a price, not a percentage or a score. Nothing about the pair changes when the number moves. Only the exchange rate between the two currencies has changed.
How many decimal places should I count as pips
Count from the fourth decimal place on AUD/USD. That place is the pip. If your platform shows a fifth place, that digit is a fraction of a pip, not another pip. Some platforms let you hide the fifth place in the settings. Whichever you choose, keep the same setting while you compare two prices.
Does the pip value in A$ stay the same all day
No. The value of one pip on AUD/USD depends on the current rate and on the size of the position. On a standard lot it is often near A$10.00 when the account is funded in Australian dollars, but it drifts as the rate moves. The platform recalculates it continuously. Check the figure shown on your own platform before you rely on it.
What does a lot size change about the quote
Nothing about the quote itself. The quote is the same for every account. Lot size changes how much money one pip of movement is worth to you. A larger lot makes each pip larger in money terms, in both directions. The number on the chart and the number in your account are two different things.
Can I trade AUD/USD without a margin account
A margin account lets you open a position larger than the cash you deposit. That increases the money value of each pip, and it increases the loss from each pip too. A smaller account can use a smaller lot size. The quote is unchanged either way. What changes is how much of your own money is exposed.
The words used on this page
- Base currency
- The first code in a pair, before the slash. It is the currency being bought or sold. The quote tells you what one unit of it costs.
- Quote currency
- The second code in a pair, after the slash. It is the currency the price is stated in. On AUD/USD the quote currency is the United States dollar.
- Pip
- The smallest conventional step in a quote for most pairs. On AUD/USD it is the fourth decimal place, or 0.0001. Money value per pip depends on lot size and rate.
- Spread
- The gap between the bid and the ask. It is what the platform charges for a round trip. A trade must cover the spread before it shows any gain.
- Lot size
- The amount of base currency in one position. A standard lot is much larger than a mini or micro lot. It sets how much money one pip of movement represents.
- Margin
- The deposit a platform requires to hold a position open. It is not a fee and it is not a limit on loss. It is returned when the position is closed.
What to take away
- A quote is the price of the first currency in the second, read in that order.
- The fourth decimal place on AUD/USD is the pip, and it is the place that moves most.
- The money value of one pip depends on the lot size and the current rate, so check it on your own platform.
- The spread sits between the bid and the ask and is paid on entry and exit.
- Figures such as pip value, commission and spread vary between brokers and account types.