Forex · 2 MIN READ
Pips, spreads & the cost of a price move
Small units, two-sided prices and the costs a simple chart does not always show.
Forex terminology often starts with small units. A pip is a conventional unit for measuring a change in a currency quote. A spread is the gap between two quoted prices. Understanding both helps explain why a price chart is only part of a transaction’s story.
What is a pip?
For many currency pairs, one pip is 0.0001. A hypothetical EUR/USD move from 1.1000 to 1.1001 is therefore one pip. For many Japanese yen pairs, the convention is 0.01 instead. Some platforms display smaller fractions called pipettes; the instrument’s specification determines the precision.
Bid, ask and spread
The bid is generally the price at which the base currency can be sold; the ask is the price at which it can be bought. In a hypothetical quote of 1.1000/1.1002, the gap is two pips. Those numbers are an example, not a live quote.
Units are not cash amounts
A one-pip change does not always represent the same monetary value. The pair, position size and account currency affect the calculation. Commission, financing charges and execution conditions can also affect total costs. A “commission-free” label does not necessarily mean a transaction has no cost.
Pips describe movement; spreads describe a quoted gap. Keeping those ideas separate makes market terminology easier to follow without treating either as a trading signal.
Further reading
OANDA — What is a pip?
Investor.gov — Quotes, pricing and costs
