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| A pip is a standard unit of price movement in a currency pair, usually represented by the fourth decimal place (0.0001). A spread is the difference between the buy (ask) price and sell (bid) price of an instrument, and is one of the costs of trading. Understanding pips and spreads can help you better understand how trading costs are calculated. |
Pips and spreads are two of the first terms many traders encounter, and they are closely linked because spreads are commonly expressed in pips. This guide explains both in simple terms, with examples for forex and CFDs, and shows how the spread can affect the cost of opening and closing a trade.
What is a pip?
A pip is a standard unit of price movement in a currency pair. For most currency pairs, a pip is represented by the fourth decimal place, or 0.0001. For example, if EUR/USD moves from 1.1000 to 1.1001, that represents a one-pip move.
Two things to note: for currency pairs that include the Japanese yen (such as USD/JPY), a pip is typically represented by the second decimal place, or 0.01. Many brokers also quote an additional decimal place, known as a “pipette” or fractional pip, for more precise pricing. For example, you may see EUR/USD quoted as 1.10005.
What is a spread?
In many markets, instruments are quoted with two prices: the ask price (the price at which you buy) and the bid price (the price at which you sell). The spread is the difference between these prices and is commonly measured in pips for forex. Depending on the forex broker and account type, the spread may be one of the costs of trading, and a separate commission may also apply.
| Example: If EUR/USD is quoted at a bid price of 1.1000 and an ask price of 1.1001, the spread is 1 pip. You would buy at 1.1001 and, if you sold immediately at the available bid price of 1.1000, the position would initially have an unrealised loss equivalent to the 1-pip spread. Other applicable costs, such as commissions, may also affect the overall cost of the trade. |
Bid vs ask: a quick recap
- Ask price: the price at which you can buy (go long).
- Bid price: the price at which you can sell (go short).
- Spread: the difference between the ask and bid prices. It is one of the costs that can affect the overall cost of a trade.
How much does the spread actually cost?
The monetary value of a pip, and therefore the monetary impact of the spread, depends on factors such as the position size, currency pair and account currency. For example, for EUR/USD with a USD-denominated account, approximate pip values are:
| Position size | Units | 1 pip ≈ | Cost of a 1-pip spread |
| Standard lot | 100,000 | $10 | $10 |
| Mini lot | 10,000 | $1 | $1 |
| Micro lot | 1,000 | $0.10 | $0.10 |
So a 1-pip spread on one standard lot costs about $10 to open. Trade often, and tighter spreads add up to real savings.
What affects the spread?
Several factors can affect the spread:
- Liquidity: Highly traded currency pairs such as EUR/USD typically have narrower spreads than less-traded or exotic currency pairs.
- Volatility: Spreads may widen during periods of increased market volatility, including around major economic announcements, or during periods of lower market liquidity.
- Account type: Depending on the broker and account type, different spreads may be available. WRPRO offers different account tiers with different spread conditions.
Tighter spreads on higher WRPRO tiers
WRPRO’s account tiers offer different spread conditions, with certain higher-tier accounts offering narrower spreads.
A narrower spread can reduce the spread component of the transaction cost. However, other costs may apply depending on the account, instrument and trading conditions.
| WRPRO account | Spread |
| Classic | Standard (default) |
| Bronze | 20% lower than Classic |
| Silver | 40% lower than Classic |
| Gold | 60% lower than Classic |
| Diamond | From 0.6 pips |
| Risk warning: Forex/CFDs trading involves significant risk to your invested capital. Please read and make sure that you fully understand our Risk Disclosure Policy. |
Frequently asked questions
What is a pip in trading?
A pip is a standard unit of price movement in a currency pair. For most currency pairs, it is represented by the fourth decimal place (0.0001). For currency pairs involving the Japanese yen, it is typically represented by the second decimal place (0.01). For example, if EUR/USD moves from 1.1000 to 1.1001, that represents a one-pip move.
What is a spread in trading?
The spread is the difference between the ask (buy) price and the bid (sell) price of an instrument. In forex, spreads are commonly expressed in pips. The spread is one of the costs that can affect the overall cost of a trade.
What is the bid-ask spread?
The bid is the price at which you can sell, while the ask is the price at which you can buy. The bid-ask spread is the difference between these two prices.
How is the spread a trading cost?
When you open a trade, you buy at the ask price and would generally sell at the available bid price. The difference between these prices represents the spread. If the market price does not move, the spread therefore has an impact on the initial value of the position. Other applicable costs, such as commissions or financing charges, may also affect the overall cost of a trade.
What is a good spread?
A narrower spread generally means a lower spread component of the transaction cost, all else being equal. Highly liquid currency pairs such as EUR/USD typically have narrower spreads than less-traded or exotic pairs. Available spreads may also vary depending on the broker, account type, instrument and market conditions.
How is pip value calculated?
Pip value depends on factors such as the currency pair, position size, exchange rate and account currency. For example, for EUR/USD with a USD-denominated account, one pip is approximately $10 for a standard lot of 100,000 units, $1 for a mini lot of 10,000 units and $0.10 for a micro lot of 1,000 units.
Do WRPRO’s spreads vary by account?
Yes. WRPRO offers different spread conditions across its account tiers. According to the applicable account terms, spreads range from the standard conditions on Classic accounts to spreads as low as 0.6 pips on Diamond accounts. Actual spreads may vary depending on the instrument and market conditions.
For more information, learn how to create trading account. You can also learn more about CFDs in our guide, What Is CFD Trading?
Risk Disclaimer
Any information/articles/materials/content provided by WRPRO or displayed on its website is intended to be used solely for educational purposes only and does not constitute investment advice or a consultation on how the client should trade.
Although WRPRO has taken care to ensure that the content of such information is accurate, - it cannot be held responsible for any omission/error/miscalculation and cannot guarantee the accuracy of any material or any information contained herein.
Therefore, any reliance you place on such material is strictly at your own risk. Please note that the responsibility for using or relying on such material rests with the client and WRPRO accepts no liability for any loss or damage, including without limitation, any loss of profit which may arise directly or indirectly from the use of or reliance on such information.
Risk Warning: FX/CFDs are complex instruments and carry a high risk of losing money quickly due to leverage. You should consider whether you understand how FX/CFDs work and whether you can afford to take the high risk of losing your money.
You should make sure that, depending on your country of residence, you are allowed to trade with WRPRO products. Please ensure that you are familiar with the company’s risk disclosure.
