Pairs and quotes: what 1.0850 means
Read the quote as one price, not two
A quote shows two numbers side by side because a trade has two sides. One side is the price at which the broker will buy the first currency from you. The other is the price at which the broker will sell it to you. The lower number is the bid. The higher number is the ask.
When you open a buy, you deal at the ask. When you open a sell, you deal at the bid. That is why the same quote can give two different entry prices depending on your direction. The gap is not an error and not a second market. It is the difference between what the broker pays and what the broker charges.
Suppose EUR/USD shows 1.0850 and 1.0852. A buy opens at 1.0852. A sell opens at 1.0850. Both entries sit away from the midpoint of the two numbers. The distance from your entry back to the other side is the first cost you carry.
Work out the value of the last decimal place
The last decimal place in a four-decimal quote is the pip. For EUR/USD at 1.0850, that place is the fourth digit after the point. One pip is a move of 0.0001. On a standard lot, one pip is worth 10 units of the quote currency, which is USD here.
The quote currency is the second currency in the pair. In EUR/USD it is USD, so pip values come out in USD first. To express that in shillings, multiply by the USD to KSh rate. That rate changes through the day, so the shilling figure is only as fresh as the rate you use.
Smaller lot sizes scale the pip value down in a straight line. A mini lot is one tenth of a standard lot, so one pip is 1 USD. A micro lot is one hundredth, so one pip is 0.10 USD. The arithmetic is the same; only the multiplier changes.
Compare a careful entry with a careless one
One reader checks the two prices before dealing. The other reads them as a mistake and deals at whichever number appears first. Both open the same direction on the same pair. The first knows the cost in pips before the order goes in. The second finds out afterwards.
On EUR/USD at 1.0850 bid and 1.0852 ask, the spread is 2 pips. On one standard lot that is 20 USD, which is KSh 2,600 at KSh 130 per USD. That amount leaves the account as soon as the trade opens, before the market has moved at all.
The careless entry is not a different trade. It is the same trade with the cost unmeasured. The market must move 2 pips in the reader's favour just to return to the starting point. Knowing that number in advance is the whole difference between the two cases.
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.
Doing it once, step by step
You will take a live-looking quote, separate its two sides, and turn the gap into a shilling cost. Do the steps in order and keep your own figures beside them.
- 01
Write down both prices
Note the bid and the ask exactly as they appear, to four decimal places. Do not round either one yet. Label which is lower and which is higher.
- 02
Subtract the bid from the ask
Take the higher number minus the lower number. For 1.0852 and 1.0850 the result is 0.0002. This difference is the raw spread.
- 03
Convert the difference into pips
Divide the raw spread by 0.0001. The result is 2 pips. If your platform quotes five decimals, the fifth digit is a fraction of a pip and the same division still works.
- 04
Apply the pip value for your lot size
On one standard lot of EUR/USD, one pip is 10 USD, so 2 pips is 20 USD. Halve it for a mini lot and divide by ten again for a micro lot.
- 05
Convert to shillings at your own rate
Multiply the USD figure by the USD to KSh rate you can see. At KSh 130 per USD, 20 USD becomes KSh 2,600. Use the rate available to you, because it varies.
- 06
Check the figure on your platform
Brokers differ on rounding, commissions and spreads during busy periods. Confirm the spread and any extra charge where you trade. Treat the worked figure as an estimate, not a promise.
The mistake most 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.
Questions that come up next
Why does my buy open at the higher number and my sell at the lower one
The two numbers are the two sides of the same deal. The broker sells to you at the higher number and buys from you at the lower one. A buy therefore starts at the ask, and a sell starts at the bid. Your entry is never the midpoint, so the trade begins slightly against you.
How do I turn a USD pip value into shillings
Work out the pip value in USD first, because USD is the second currency in EUR/USD. Then multiply by the USD to KSh rate you can see at that moment. On one standard lot, one pip is 10 USD, so at KSh 130 per USD it is KSh 1,300. The rate changes through the day, so the shilling figure changes with it.
Does a smaller lot change the pip value in a straight line
Yes. A mini lot is one tenth of a standard lot, so one pip is 1 USD. A micro lot is one hundredth, so one pip is 0.10 USD. The arithmetic stays the same and only the lot size multiplier changes. Divide or multiply the standard lot figure to match the size you use.
Is the spread the only cost I pay to open a trade
No. Some brokers add a commission on top of the spread. Others build their charge into a wider spread instead. The two arrangements can cost different amounts, so read the fee schedule for the account you hold. The spread is simply the cost you can see in the quote itself.
Why is the spread wider at some times of day
When many participants are trading, the two prices sit close together. When activity is thin, the gap widens because the broker carries more risk. Spreads on EUR/USD often widen around major news releases and at the daily rollover. Check the live quote rather than assuming the figure you saw earlier still holds.
Can I place an order without checking the spread first
You can, but you then carry a cost you have not measured. Subtract the bid from the ask, divide by 0.0001 to count the pips, and convert to shillings. That tells you how far the market must move before the trade is level. Doing this before the order takes less time than working it out afterwards.
The words used on this page
- bid
- The lower of the two prices in a quote. It is the price at which the broker will buy the first currency from you. A sell order opens at this price.
- ask
- The higher of the two prices in a quote. It is the price at which the broker will sell the first currency to you. A buy order opens at this price.
- spread
- The gap between the bid and the ask. It is measured in pips and is a cost you carry from the moment a trade opens. A wider spread means a larger cost.
- pip
- The last decimal place in a four-decimal quote, a move of 0.0001. On one standard lot of EUR/USD it is worth 10 USD. Smaller lot sizes reduce that figure in proportion.
- quote currency
- The second currency in a pair, which is USD in EUR/USD. Pip values come out in this currency first. You then convert to shillings using the current rate.
- standard lot
- A fixed trade size used here as the reference point. On EUR/USD, one pip on a standard lot is 10 USD. Mini and micro lots are fractions of it.
What to take away
- A quote is one price with two sides, not two prices for two things. The bid is the lower number and the ask is the higher one.
- A buy opens at the ask and a sell opens at the bid, so your entry always sits away from the midpoint.
- The last decimal place is the pip. On one standard lot of EUR/USD it is 10 USD, which converts to shillings at the current rate.
- The spread is a cost you carry from the open. Count the pips and convert to KSh before you place the order, and check the figures on your own platform.