Key takeaways
- In BASE/QUOTE, the price is how many units of the quote currency one unit of the base is worth.
- Buy at the ask and sell at the bid; the gap between them is the spread, a real cost.
- A pip is usually the fourth decimal, or the second for yen pairs; the extra digit is a pipette.
- Cross rates are implied by two dollar pairs, so dollar news can move pairs that do not contain the dollar.
- Charts typically show the bid, so check where short trades and their stops actually trigger.
A forex quote looks like a single number, but it hides a small sentence: how much of one currency you must hand over to get one unit of another. Once you can read that sentence, spreads, pips and profit calculations stop feeling like a foreign language.
The two halves of a pair
Every pair is written as BASE/QUOTE. The first currency is the base, the second is the quote (sometimes called the counter currency). The price tells you how many units of the quote currency one unit of the base is worth.
Take EUR/USD at 1.0850. One euro costs 1.0850 US dollars. The euro is the thing being priced; the dollar is the yardstick. If the quote rises to 1.0900, the euro has become more expensive in dollar terms, which is the same as saying the dollar has weakened against the euro.
When you buy a pair you buy the base currency and sell the quote currency at the same moment. Selling the pair does the reverse. That is why a trade is always a view on one currency relative to another, never on a currency alone.
Why there are always two prices
Platforms show a bid and an ask. The bid is what the market will pay you if you sell the base currency. The ask (or offer) is what you must pay if you buy it. The ask is always a little higher than the bid, and the gap between them is the spread.
| Quote element | Example (illustrative) | What it means |
|---|---|---|
| Bid | 1.08498 | The price at which you can sell EUR/USD |
| Ask | 1.08502 | The price at which you can buy EUR/USD |
| Spread | 0.00004 = 0.4 pips | The built-in cost of entering and leaving |
| Mid price | 1.08500 | Halfway point, used for reference only |
Say you buy 10,000 euros at the ask of 1.08502. You pay 10,850.20 US dollars for them. If you sold them straight back at the bid of 1.08498 you would receive 10,849.80. The 0.40 dollar difference is the spread paid on that round trip, before any commission.
Price charts usually plot the bid. This matters when you place stop-loss and take-profit orders: a long position closes on the bid, a short position closes on the ask, so a chart that only draws the bid will not show you exactly where a short trade is triggered.
Pips, pipettes and decimals
A pip is the standard small step in a quote. For most pairs it is the fourth decimal place (0.0001). For pairs where the yen is the quote currency it is the second decimal place (0.01). Many brokers quote one extra digit, called a pipette or fractional pip, which is a tenth of a pip.
| Pair | Quote shown | One pip is | Pipette digit |
|---|---|---|---|
| EUR/USD | 1.08502 | 0.0001 | The final 2 |
| GBP/USD | 1.27041 | 0.0001 | The final 1 |
| USD/JPY | 150.024 | 0.01 | The final 4 |
So a move in USD/JPY from 150.00 to 150.25 is 25 pips, and a move in EUR/USD from 1.0850 to 1.0875 is also 25 pips. The pip size differs, but the vocabulary is shared. How much money a pip is worth depends on trade size and on the pair, which is covered in our pip value worked examples.
Direct, inverse and cross quotes
Every pair has a mirror image. If EUR/USD is 1.0850, then USD/EUR is simply 1 divided by 1.0850, about 0.9217. Platforms list only one direction, but the arithmetic is symmetrical.
Pairs that do not contain the US dollar are cross rates. Their price is implied by two dollar pairs. Suppose EUR/USD is 1.0850 and GBP/USD is 1.2700 (illustrative). One euro is 1.0850 dollars and one pound is 1.2700 dollars, so one euro is 1.0850 / 1.2700 = 0.8543 pounds. That is EUR/GBP.
This is useful in two ways. First, a cross quote cannot drift far from the two legs it is built on, because traders would exploit the gap. Second, it reminds you that a EUR/GBP trade quietly involves the dollar-side moves of both currencies, so a surprise in US data can nudge a pair that contains no dollar at all.
Reading any quote in four steps
- Split the pair. Identify the base (left) and quote (right). The price is units of the quote per one unit of the base.
- Pick the correct side. Buy at the ask, sell at the bid. Your open position is valued at the price you would close at, so you start slightly in the red by the spread.
- Find the pip. Locate the pip digit: the fourth decimal for most pairs, the second for yen pairs. The digit after it is a pipette.
- Convert to money. Multiply the pip move by position size, then convert from the quote currency into your account currency if they differ.Tip: The conversion step is where beginners make most arithmetic errors.
Frequently asked questions
Does a higher quote mean a stronger currency?
A higher number in a pair means the base currency has strengthened relative to the quote currency. It says nothing about the economy of either country in absolute terms, and the same move reads as the opposite if you look at the inverted pair.
Why do some brokers show five digits and others four?
Brokers that add a fractional pip quote one extra decimal for tighter pricing granularity. The extra digit does not change the pair; it simply splits each pip into ten parts.
Is the spread the same all day?
No. Spreads usually narrow when liquidity is deep, for example when London and New York are both open, and widen around data releases, market opens and thin holiday sessions.
Can I trade a pair that does not include my account currency?
Yes. Your platform converts profit and loss into the account currency at the prevailing rate, so the value of one pip moves slightly as exchange rates change.