FOREX TRADING- The Basics Explained in Simple Terms ( PDFDrive.com )

If the AUD / USD were quoted at 0.7125 / 0.7128, what exactly does this mean?
▪ The first figure of 0.7125 is called the 'bid' price
▪ The 2nd figure of 0.7128 is the 'ask' price
▪ The difference between these two figures is called the 'spread'
If I wished to buy the Aussie, thinking that the Australian dollar is going to go up in
value compared to the US dollar, I would be required to pay the ASK price, which in
this case is 0.7128. On the other hand, if I thought the Aussie was becoming weaker
against the US dollar and I wished to sell it, then I would sell it at the BID price of
0.7125.
Now if I was to buy the Aussie at 0.7128 and then immediately close my position
before the price had a chance to move, I would have to close the position by selling
the Aussie at 0.7125.
Now there is a difference of 0.0003, which is called the spread, and that would be the
amount I lost on this trade. In the case of the Aussie, each 0.0001 move is called a
pip (or sometimes referred to as a point). So on this trade, I would have lost 3 pips
(or 3 points).
All the pairs I mentioned above, except the JPY pairs, normally have four decimal
places, and their pip value is calculated the same as the above Aussie example. The
JPY pairs usually only have the two decimal places. An example of the USD/JPY
could be quoted as follows:
97.81 / 97.83.
This tells me that one US dollar is equal to approximately 97.8 Japanese yen.
The bid price is 97.81 and the ask price is 97.83, and that there is a 2 pip spread. In
this case each 0.01 move is called a pip.
Important: Most brokers these days have an extra decimal place on their quoted
prices. This has come about as the result of spreads becoming tighter over the
years.
When I first started trading, a small spread on the EUR/USD was 3 pips, whereas
nowadays it is common to see the spread on this pair at 0.8 of a pip or even less.
Hence the addition of this extra decimal point on the quoted prices. If you see three
or five decimal places and depending on how precise your trading is, I would
suggest you just ignore the very last digit. That is the simplest way.
For example if you saw a quote for the EUR/USD as 1.38641 / 1.38663, you would
simply read it as 1.3864 / 1.3866 by dropping the last digits. Then you can see that
you have a spread of 2 pips. This is just to keep it simple. If you wanted to be