FX · X2 · 8 min
Quotes, pips and two-way prices
Read a currency quote, know which price a client deals at, and work out what a move in pips is worth.
In the news: “Cable fell 80 pips”: what a move like that means in money.
The essentials
- Base and terms currency
- In GBP/USD 1.2500, sterling is the , the one being priced, and the dollar the : £1 costs $1.25. A higher number means a stronger base currency.
- Which way round
- Each pair is written one agreed way, such as EUR/USD, GBP/USD (nicknamed ) and USD/JPY. The reciprocal turns a rate round: at GBP/USD 1.25, $1 is £0.80.
- Pips and what they are worth
- A is 0.0001, or 0.01 in yen pairs. One pip on 10m of the base currency is worth 1,000 of the terms currency: $1,000 on £10m of cable, ¥100,000 on $10m of USD/JPY.
- Bid and offer
- In a such as EUR/USD 1.0850/52, the dealer buys the base currency at the bid and sells it at the offer. The client gets the worse side: selling euros, or buying dollars, deals at 1.0850.
- The spread
- The gap between bid and offer: 2 pips in 1.0850/52. It pays the dealer for the risk of holding a position until it can pass it on, and widens for large trades, quiet hours and big news.
- The big figure
- Dealers skip the leading digits, the , and quote the last two: EUR/USD 1.0850/1.0852 is said “50/52”. If the offer’s digits are below the bid’s, the big figure has ticked up.
P&L from a move in pips
P&L (terms currency) = N × pips × pip size
- N
- notional in the base currency
- pips
- pips moved in your favour (negative if against you)
- pip size
- 0.0001, or 0.01 in yen pairs
How it works
1. What a quote means
GBP/USD 1.2500 means £1 costs $1.25. The first currency is the one being priced, the ; the second, the , is what the price is in. If the number rises, each pound buys more dollars: sterling has strengthened.
2. Turning a quote round
If £1 is $1.25, then $1 is 1 ÷ 1.25 = £0.80. That is the reciprocal. Markets agree which way round to write each pair, so traders say GBP/USD, EUR/USD and USD/JPY. GBP/USD also has a nickname: .
3. Pips
Rates usually move in small steps. A is the fourth decimal place, 0.0001: GBP/USD going from 1.2500 to 1.2530 is a 30-pip rise. In yen pairs, priced around 150, a pip is the second decimal, 0.01. Many screens add one more decimal: a tenth of a pip.
4. What a pip is worth
On £1 of GBP/USD a pip is worth $0.0001, so on £10m it is £10m × 0.0001 = $1,000. Profit or loss = amount × pips × pip size, and it comes out in the terms currency. In USD/JPY a pip on $10m is ¥100,000; divide by the rate, 150, to see about $667.
5. Bid and offer
A dealer shows two prices, a : EUR/USD 1.0850/1.0852. They buy euros at the first, the bid, and sell euros at the second, the offer. The client always gets the side that is worse for them.
6. Check which currency
A client who wants to buy dollars in EUR/USD is selling euros, the base currency, so they get the bid too. Before answering, turn every request into buying or selling the base currency.
7. The spread
The gap between bid and offer is the : 2 pips in 1.0850/1.0852. It pays the dealer for the risk of holding the position until they can pass it on. It widens for big trades, quiet hours and around big news.
8. The big figure
Dealers skip the leading digits, the , and quote the last two: with EUR/USD at 1.0850/1.0852 they say “50/52”. If the offer’s digits are lower than the bid’s, the big figure has ticked up: 1.2697/03 means an offer of 1.2703.
Worked example
A client bought £10m of cable at the dealer’s offer of 1.2652. Cable falls 80 pips to 1.2570/72, and the client asks you to close the position.
- One pip on £10m: £10,000,000 × 0.0001 = $1,000.
- Closing a long means selling sterling, so the client gets the bid: 1.2570.
- Move: 1.2570 − 1.2652 = −82 pips (80 pips of market move plus the 2-pip spread).
- P&L: −82 × $1,000 = −$82,000.
- In sterling: −$82,000 ÷ 1.2570 = about −£65,200.
About −$82,000: 82 pips at $1,000 a pip.
Check yourself
8 quick questions on the explanation above.
Practice
New numbers every set. Misses and guesses go into your review deck.
In the interview
Answer out loud in under a minute, then compare.
EUR/USD is quoted 1.0850/52 and a client sells euros. At what rate do you deal?
What’s a pip, and what’s one worth on ten million?
Why would a dealer widen a price?
Remember
1 pip on 10m = 1,000 of the terms currency
The client always deals on the worse side, and a pip is worth notional × 0.0001 (0.01 in yen pairs) in the terms currency.