Pairs and quotes: what 1.0850 means
What you learn in 3 minutesA price quote like 1.0850 tells you what one unit of the first currency costs in the second currency. If the pair is EUR/USD, the first currency is the euro and the second is the US dollar, so 1.0850 means one euro costs 1.0850 dollars. The last decimal place is where the price usually moves, and that place has a real money value. On a USD/ZAR quote of 18.4100, the last digit is the fourth decimal, and one step in that digit is worth a small but calculable amount in rand. This lesson shows where the two-digit difference in a quote comes from and what it costs.
18.4100 and 18.4102 — where the two-digit gap comes from
| Step | Amount | Note |
|---|---|---|
| Bid price | 18.4100 | The price at which the broker will buy USD from you, so you can sell. |
| Ask price | 18.4102 | The price at which the broker will sell USD to you, so you can buy. |
| Difference in the last decimal place | 2 steps | 18.4102 minus 18.4100 equals 0.0002, which is two steps in the fourth decimal. |
| Value of one step on 10,000 units | R0.10 | 10,000 units times 0.0001 equals 1 unit of the quote currency, here 1 rand, but on 10,000 units the step is 0.10 rand. Wait, check: 10,000 * 0.0001 = 1.00. So one step is R1.00, not R0.10. Correct this. |
| Corrected value of one step on 10,000 units | R1.00 | 10,000 units times 0.0001 equals 1.00 rand. So each step in the fourth decimal is worth R1.00 on this position size. |
| Cost of the two-step gap on 10,000 units | R2.00 | Two steps times R1.00 per step equals R2.00. This is the spread cost before any other fees. |
The broker may round the quoted price, charge a commission on top, or widen the spread around news times. The exact spread varies between brokers and between account types.
The mistake people make here
A common mistake is to read 1.0850 as a whole number and think a move to 1.0852 is tiny and not worth counting. In money terms, two steps in the last decimal place on a 10,000-unit position is R2.00 on USD/ZAR, and that adds up over many trades. Another mistake is to ignore the difference between the bid and the ask and assume you can buy and sell at the same price. Instead, always check both prices, calculate the spread in rand for your position size, and treat that spread as a cost you pay when you open a trade.Check yourself
If USD/ZAR moves from 18.4100 to 18.4105, how many steps did it move, and what is that worth on 20,000 units?
It moved 5 steps in the fourth decimal. One step on 20,000 units is 20,000 times 0.0001 equals R2.00. So 5 steps times R2.00 equals R10.00.
A quote shows 18.4100 bid and 18.4102 ask. If you buy 5,000 units and immediately sell at the bid, what is the spread cost in rand?
The gap is 2 steps. One step on 5,000 units is 5,000 times 0.0001 equals R0.50. Two steps times R0.50 equals R1.00. So the spread cost is R1.00 before any other fees.