How to Read a Forex Quote: Pips, Lots and Spreads Explained

Most people who lose money trading forex could not have answered a basic question before they started: if this moves one pip against me, how many shillings do I lose?

That is not a trick question. It is the arithmetic of the position, and it is knowable before you click anything. This article is the boring prerequisite — how to read what is on the screen.

What a currency pair is

A forex quote always involves two currencies, because a currency only has value relative to another.

In a pair, the first currency is the base and the second is the quote. The price tells you how much of the quote currency it takes to buy one unit of the base.

So if a pair is trading at 1.0850, one unit of the base costs 1.0850 units of the quote. If that number rises, the base has strengthened relative to the quote. If it falls, the base has weakened.

"Buying" a pair means buying the base and selling the quote. "Selling" it means the reverse. There is no separate action for betting on a fall — selling the pair is that action, which is why you can profit from a decline without owning anything.

Bid, ask and the spread

You will always see two prices, not one:

• The bid — what you can sell at.
• The ask (or offer) — what you can buy at.

The ask is always higher. The gap between them is the spread, and it is a cost you pay on entry.

The immediate consequence, and it is not obvious to beginners: you open every trade at a small loss. Buy at the ask, and the position is immediately valued at the bid. The market must move in your favour by at least the spread before you are level.

Two things follow:

• The spread is a real, repeated cost. Someone trading many times a day pays it many times a day. This is why overtrading drains accounts that never took a big loss.
• A "zero commission" account is not free. The cost has moved into the spread. Compare total cost, not the label.

Spreads widen at volatile moments and around market opens and closes — which is precisely when many people want to trade.

Pips

A pip is the standard increment a price moves in.

For most pairs, quoted to four decimal places, a pip is the fourth decimal: a move from 1.0850 to 1.0851 is one pip.

The exception worth knowing: pairs involving the Japanese yen are quoted to two decimal places, and a pip is the second decimal. Getting this wrong by a factor makes a nonsense of your risk calculation.

Many brokers also show a fifth decimal (or third on yen pairs) — a fractional pip, giving finer pricing. It is not a different unit; it is a tenth of a pip.

Lots, and why pip value is the number that matters

Here is the part that connects the screen to your money.

Positions are sized in lots. A standard lot is 100,000 units of the base currency. From that, by division:

• Mini lot — 10,000 units, a tenth of a standard lot.
• Micro lot — 1,000 units, a hundredth.

Pip value scales directly with position size. The same one-pip move produces ten times the profit or loss on a mini lot as on a micro lot, and a hundred times on a standard lot.

Which produces the sentence this whole article exists for:

A pip is not an amount of money. A pip on a stated position size is.

"I was up 30 pips" tells you nothing about the money. Thirty pips on a micro lot and thirty pips on a standard lot differ by a factor of a hundred. Anyone quoting pips without position size is describing something other than their results.

Before you open any position, know what one pip costs you on that size. Your platform will show it. If you cannot state that figure, you cannot state your risk — and if you cannot state your risk, you have not sized the trade, you have guessed it.

Putting it together

A worked reading, using round numbers purely as arithmetic:

Suppose you buy one mini lot and set a stop 50 pips away. If one pip on that size is worth, say, 100 shillings, then:

• Your stop represents 50 × 100 = 5,000 shillings of risk.
• The spread cost you a few pips on entry, so you are behind from the start.
• If the trade moves 100 pips in your favour, you are up roughly 10,000 shillings before costs.

The numbers are illustrative — yours depend on the pair, the size and your account currency. The method is the point: stop distance × pip value = money at risk, decided before you enter.

This is what makes position sizing possible. Decide the shilling amount you are willing to lose, look at where your stop must go for the trade to make sense, and let those two determine the position size — rather than choosing a size and discovering the risk afterwards.

The other costs on the screen

Commission, on some account types, charged separately from the spread.

Swap or overnight financing — a charge, occasionally a credit, for holding a position overnight. Irrelevant intraday, meaningful over weeks, and the reason holding a losing position indefinitely is not a free option.

Slippage — execution at a worse price than requested when markets move fast. Your stop is an instruction, not a guaranteed price.

These, and what they do to an account over time, are covered in leverage and margin explained — which is the article to read next, because quote mechanics tell you what you are looking at, and leverage tells you how quickly it can end.

A note on the account currency

One detail that quietly confuses Kenyan traders: your account is denominated in a currency, and it is usually not the shilling.

Most retail accounts are held in US dollars. That has consequences worth understanding before they surprise you:

Your pip value is calculated in the account currency, then means whatever it means in shillings on the day. A dollar-denominated profit is worth more or fewer shillings depending on where the shilling has moved — so your shilling return is your trading result plus a currency effect you did not choose.

Funding and withdrawing costs a conversion each way. Shillings to dollars going in, dollars to shillings coming out, each with a margin. Frequent small deposits and withdrawals pay that repeatedly. The cost mechanics are the same as those described in sending money from Kenya abroad.

Your stated risk is in the account currency too. If you decide to risk a fixed shilling amount per trade, you have to convert that into the account currency to size the position — and revisit it as the rate moves, rather than setting it once and forgetting.

None of this is a reason not to hold a dollar account. It is a reason to know which currency you are actually measuring yourself in, because a year of flat trading can still show a shilling gain or loss purely from the exchange rate.

Before any of this matters

Reading a quote correctly does not make trading profitable. It makes it measurable, which is a prerequisite rather than an edge.

Two things to settle first:

• Verify your broker on the CMA register at licensees.cma.or.ke. Kenya licenses online forex brokers domestically, which is a real advantage — use it. See CMA-licensed forex brokers in Kenya and is forex trading legal in Kenya.
• Recognise the patterns of fraud before you fund anything, particularly anyone offering to trade for you or promising a return — see how to spot a forex or crypto scam.

And use a demo account until you can read a quote, size a position from a stop, and state your risk in shillings without thinking about it. That costs nothing except patience, which is the cheapest thing you will ever pay for this education.

Frequently asked questions

What is a pip in forex? The standard increment a price moves in — the fourth decimal place for most pairs, and the second decimal for pairs involving the Japanese yen.

What is the difference between the bid and the ask? The bid is what you can sell at, the ask is what you can buy at, and the gap between them is the spread — a cost you pay when you open a position.

How much is a pip worth? It depends entirely on your position size. A pip is not a fixed amount of money, which is why pips quoted without a position size mean nothing.

What is a lot? A standardised position unit. A standard lot is 100,000 units of the base currency; a mini lot is 10,000 and a micro lot 1,000.

Why am I losing money the moment I open a trade? The spread. You buy at the ask and the position is valued at the bid, so the market must move in your favour by at least the spread before you break even.

Does a zero-commission account mean free trading? No. The cost is generally in the spread instead. Compare the total cost of trading rather than the headline.

What does it mean to sell a currency pair? Selling the base currency and buying the quote currency — the way you take a position on the base falling, without owning anything.

Reviewed 29 August 2026. Describes standard forex quote conventions, which are the same across brokers. Spreads, commissions, swap charges and available leverage are set by individual brokers within the CMA's rules and change — check your own account terms, and verify any broker on the CMA register. Trading is high-risk and you can lose money with a fully licensed broker. General information, not investment advice.