Spread and commission are your real cost
Lesson 2 of 4 · about 9 minutes
2 questions, each checked the moment you answer it.
7 steps · about 9 minutes
The interactive lesson walks these ideas one screen at a time and checks your answers as you go. The text below covers the same ground for reading.
Price moves are measured in pips
A price move is the difference between an earlier price and a later price, and the pip is its standard unit: on EUR/USD it is 0.0001 of the price, so 1.08650 rising to 1.08660 is a move of 0.00010, which is one pip. The spread is measured with the same unit. Lesson 1 found the bid at 1.08642 and the ask at 1.08651, a gap of 0.00009, which is 0.9 of a pip.
A lot is how big a trade is
It counts units of the base currency. One standard lot is 100,000 units, so one standard lot of EUR/USD is 100,000 euro, and the 0.40 lots of the example trade is 40,000 euro. Size is what decides how much money a one pip move is worth: at 1.00 lot a EUR/USD pip is worth US$10, at 0.40 lots it is US$4, and at 0.10 lots it is US$1.
This trade's 0.9 pip spread costs US$3.60
The example trade is a buy of EUR/USD, 0.40 lots, filled at the ask of 1.08651 while the bid sat at 1.08642. Every number in that US$3.60 comes from one of four steps.
Commission is charged per lot, each time you trade
Commission is a fixed fee for placing a trade, and it is charged twice: once when the trade opens and again when it closes. The published rate is per standard lot, so what your trade pays scales with its size.
Costs are charged in the currency the pair is quoted in
Your account may hold something else. GBP/USD 1.2650 means one pound is worth US$1.2650, so a pound buys more than a dollar does. To turn a cost in dollars into pounds you divide by that rate, and because the pound is the bigger unit the pound figure comes out smaller than the dollar figure you started with.