Forex spreads, pips, and the real cost of a trade
Learn how bid, ask, spread, pip value, and position size combine into the real cost of entering a forex trade.
The working idea
Every forex quote has two prices. The bid is where you can sell, and the ask is where you can buy. The spread is the distance between them, so a EUR/USD quote of 1.08340 / 1.08346 shows a 0.6 pip spread.
That spread is a trading cost because a new position starts slightly negative. Price must move through the spread before the trade reaches breakeven, even before commissions, swaps, or slippage are considered.
How to read pip value
A pip is a standardized movement, but the cash value is not fixed for every trade. It changes with position size and, for some pairs, with currency conversion into the account currency.
On many USD-quoted major pairs, one standard lot makes one pip roughly equal to 10 USD. A mini lot is roughly 1 USD per pip, and a micro lot is roughly 0.10 USD per pip.
Common mistake
New traders often compare brokers by the smallest spread they see in a table. That is incomplete. The better comparison is typical spread during the session you trade, plus fill quality during normal and volatile conditions.
If a quote looks tight but fills are inconsistent, the real cost may be higher than expected. Pricing and execution have to be reviewed together.
Bullion workflow
Before placing a trade, check the live spread, the expected pip value, and the position size in the order ticket. The trade should make sense in cash terms, not only in chart terms.
After the trade, compare requested price, filled price, and closing cost in the statement. Over time, this creates a practical view of execution quality instead of relying on one emotional fill.
Risk note
This article is educational and does not constitute investment advice. Trading foreign exchange, CFDs, metals, indices, and crypto derivatives involves significant risk and may not be suitable for all investors.