How to Read a Forex Quote: Bid, Ask, Spread & Pip Explained
EUR/USD at 1.1050/1.1052. Two prices, one currency pair. If you don't understand what both numbers mean, you're trading blind. Here's how to read any forex quote.
Every forex quote shows two prices: the bid and the ask. The bid is the price at which you can sell the base currency (the first currency in the pair), and the ask is the price at which you can buy the base currency. The difference between them is called the spread, and it represents your cost of trading. Understanding these two numbers is the foundation of every forex trade you will ever place.
Real-world example: EUR/USD is quoted at 1.1050/1.1052. If you BUY (go long), you pay the ask: 1.1052. If you SELL (go short), you receive the bid: 1.1050. The spread is 2 pips. On a standard lot of 100,000 units, those 2 pips cost you $20 — win or lose, that cost is deducted from your position immediately. Learn the basics of forex trading →
Anatomy of a Forex Quote
Every currency pair has a base currency (the first one listed) and a quote currency (the second one). In EUR/USD, the euro is the base and the US dollar is the quote. The exchange rate tells you how much of the quote currency you need to buy one unit of the base currency. If EUR/USD is 1.1050, you need $1.1050 to buy 1 euro.
The bid price is always on the left (the lower number), and the ask price is always on the right (the higher number). When you see EUR/USD quoted as 1.1050/1.1052, the broker will buy euros from you at 1.1050 (the bid) and sell euros to you at 1.1052 (the ask). The broker earns the spread — the difference between these two prices — as compensation for facilitating your trade. The tighter the spread, the less you pay to enter and exit positions.
Base Currency and Quote Currency
The base currency is the financial foundation of the quote. When you buy a currency pair, you are buying the base currency and selling the quote currency. When you sell a pair, you are selling the base currency and buying the quote currency. This distinction matters because it determines whether you are betting on the base currency to strengthen or weaken.
For example, if you believe the euro will strengthen against the US dollar, you buy EUR/USD (buy the base EUR, sell the quote USD). If you believe the dollar will strengthen, you sell EUR/USD (sell the base EUR, buy the quote USD). Major pairs like EUR/USD, GBP/USD, and USD/JPY follow this same structure. In USD/JPY, the US dollar is the base, so buying USD/JPY means you expect the dollar to strengthen against the yen. Learn more about currency pair categories →
Understanding the Spread
The spread is the difference between the bid and ask price, measured in pips. A pip is the smallest standard price movement in a currency pair — 0.0001 for most pairs (four decimal places) and 0.01 for JPY pairs (two decimal places). The spread is how your broker makes money, and it varies based on market conditions, the currency pair, and your broker's pricing model.
USD/JPY is quoted at 150.50/150.53. If you BUY, you pay 150.53. If you SELL, you receive 150.50. The spread is 3 pips. For JPY pairs, each pip is 0.01, so the 3-pip spread equals 0.03. On a standard lot of 100,000 units, a 3-pip spread on USD/JPY costs approximately $20, depending on the current exchange rate. Major pairs like EUR/USD typically have spreads of 0.1 to 1.0 pips, while exotic pairs can have spreads of 20 to 50 pips or more. Step-by-step guide to starting forex trading →
Pip Values and Lot Sizes
A pip's monetary value depends on three factors: the currency pair being traded, the size of your position (lot size), and the exchange rate. For pairs where USD is the quote currency (EUR/USD, GBP/USD, AUD/USD), calculating pip value is straightforward. For a standard lot of 100,000 units: pip value = 0.0001 x 100,000 = $10 per pip. For a mini lot (10,000 units): pip value = $1 per pip. For a micro lot (1,000 units): pip value = $0.10 per pip.
| Lot Type | Units | Pip Value (EUR/USD) | Pip Value (USD/JPY) |
|---|---|---|---|
| Standard | 100,000 | $10.00 | ~$6.64 |
| Mini | 10,000 | $1.00 | ~$0.66 |
| Micro | 1,000 | $0.10 | ~$0.07 |
For USD/JPY, pip value depends on the exchange rate. At 150.50, one pip (0.01) on a standard lot is calculated as: 0.01 x 100,000 / 150.50 = approximately $6.64. Use our position size calculator →
Why are there two prices?
Every financial market has two prices: the price at which you can buy (ask) and the price at which you can sell (bid). This is how market makers and brokers facilitate trading while managing their own risk. The broker buys at the bid and sells at the ask, capturing the spread as profit. Without two prices, there would be no mechanism for the broker to earn compensation for providing liquidity and execution services. Think of it like exchanging currency at an airport — the kiosk buys dollars at one rate and sells them at a slightly higher rate.
What causes spreads to widen?
Spreads widen when market liquidity decreases or volatility increases. Common causes include major economic news releases (non-farm payrolls, central bank interest rate decisions), overlapping market sessions where liquidity shifts (the Sydney-Tokyo overlap has less liquidity than London-New York), holidays when trading volumes drop, and geopolitical events that create uncertainty. Exotic pairs naturally have wider spreads because they have less trading volume. A EUR/USD spread of 0.5 pips during normal conditions can widen to 2-3 pips during a major news event. Avoid trading during these volatile periods or factor the wider spread into your trade plan.
How do I calculate pip value?
For pairs where USD is the quote currency (EUR/USD, GBP/USD, AUD/USD, NZD/USD), the formula is simple: pip value = 0.0001 x lot size. For a standard lot (100,000 units), each pip is worth $10. For pairs where USD is the base currency (USD/JPY, USD/CHF, USD/CAD), the formula adjusts for the exchange rate: pip value = (0.01 for JPY or 0.0001 for others) x lot size / current exchange rate. For cross pairs that don't involve USD, you need to convert the result to your account currency using the USD exchange rate of the quote currency. Most brokers display pip values automatically in your trading platform, but knowing the calculation helps you understand your risk per trade regardless of market conditions.
What's a good spread for forex trading?
A good spread depends on the currency pair and your trading style. For EUR/USD, a spread of 0.1 to 0.5 pips is excellent and typical of ECN brokers. Anything under 1 pip is considered good. For GBP/USD, 0.5 to 1.0 pips is standard. For USD/JPY, 0.5 to 1.0 pips is normal. Day traders and scalpers should prioritise tight spreads because they open and close many positions, so small per-trade savings add up significantly. Swing traders who hold positions for days or weeks can tolerate slightly wider spreads because the cost is spread over a longer holding period. Always check your broker's spread during the London and New York sessions (the most liquid times) — spreads during Asian session hours are typically wider. Compare brokers with the tightest spreads →
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