NoaFX Tutorial

3.1 Price Definition

Price Quotes

For every currency pair, there will be two prices. Namely, they are;

  • The Sell / Bid Price and
  • The Buy / Ask Price.

They are clearly shown on your broker's platform, under the Market Watch window;

Price Denomination

Each currency pair price is given up to 4 decimal places. The last unit or smallest unit is called a PIP (Percentage in Point). This is the smallest movement that any currency exchange rate can have.

While trading stocks, traders are earning cents or its fractions, when trading futures, points are being earned or lost and in Forex trading, we are earning or losing pips.

This is applicable only to Majors. For Yen Crosses, the price feeds are given only up to 2 decimal places.

Note:There are brokers who offer 5 and 3 decimal places feeds for Majors and Yen Crosses respectively and these are called pipettes but this is not an industry wide practice.

Price Spread

Forex quotes are always provided with bid and ask prices, similar to what you see in the equity markets. The bid represents the price at which the Forex market maker is willing to buy the base currency (USD in our example) in exchange for the counter currency (CAD). Conversely, the ask price is the price at which the forex market maker is willing to sell the base currency in exchange for the counter currency.

For example, let's say we had a USD/CAD bid price of 1.0350 and an ask price of 1.3054. Thus, the spread would be equal to 0.0004, or $0.0004.

In other words, every time you open a position in USD/CAD, the market must move in your direction by 4 pips before you will be in a breakeven mode.