EUR/USD

Every pip on this pair is priced in US dollars, which keeps the profit and loss maths simple: one pip on a standard lot is $10. The direction is where beginners slip: a strong dollar pushes EUR/USD down, not up.

Why EUR/USD is the pair most traders start with

EUR/USD is the most traded currency pair in the world, and traders often call it "fiber". With so much trading in it, it usually has the tightest spreads of any pair, so your cost of entry tends to be lower here than on less traded pairs. It also works as a mirror of the dollar. The dollar is on one side of most major pairs, so many traders check the EUR/USD chart first to see what the dollar is doing overall.

What the EUR/USD price is telling you

The euro comes first, so it is the base currency: the one you buy or sell. The dollar comes second, so it is the quote currency: the one the price is counted in. The picture below labels each part of a quote.

The parts of a EUR/USD quote: base currency, quote currency and the pip digit

Use this rule to pick a direction:

• If you expect the euro to gain on the dollar, buy.
• If you expect the dollar to gain on the euro, sell.

Which way to trade EUR/USD: buy when you expect the euro to gain, sell when you expect the dollar to gain

Reading the two EUR/USD prices and the fifth decimal

Most platforms and charting sites list the pair as EURUSD, without the slash.

You will see two prices, not one. The ask is the higher price, where you buy. The bid is the lower price, where you sell. The gap between them is the spread, and it is your cost of entry.

Many platforms show a fifth decimal. That last digit is a tenth of a pip, so count pips from the fourth decimal.

EUR/USD bid and ask prices with the spread between them, shown to the fifth decimalIllustration

How a EUR/USD move turns into dollars

A pip is a move of 0.0001 in the price. Because the dollar is the quote currency, one pip is always worth the same number of dollars for a given trade size. The formula you can copy is: pip value = units × 0.0001.

Here is an illustrative example with round numbers. You buy one mini lot at the ask of 1.1000, the same quote as in the bid and ask figure above, with a stop at 1.0980 and a target at 1.1050. The bid is 1.09988, so the trade starts 1.2 pips (about $1.20 on a mini lot) in the red.

The stop is 1.1000 − 1.0980 = 0.0020, which is 20 pips. The target is 1.1050 − 1.1000 = 0.0050, which is 50 pips. The steps below turn those pips into money.

Risk and target in dollars for a one mini lot EUR/USD trade

Position value10,000 × 1.1000= $11,000

Value of 1 pip10,000 × 0.0001= $1

Loss at the stop (20 pips)20 × $1= $20

Gain at the target (50 pips)50 × $1= $50

Risk vs. target$20 risk for $50 target

The first line is the full value of the position: you control $11,000 of currency while your planned risk is $20.

If your account is not held in dollars, the platform converts that dollar result into your currency at the current rate. The rule you can copy is: pip value in your currency = dollar pip value × the current USD-to-your-currency rate. In the same illustrative example, if one dollar bought 80 units of your currency, the $1 pip would be worth $1 × 80 = 80 units. That rate moves, so the pip value in your own money shifts a little from day to day.

What moves the euro against the dollar

Two central banks sit behind this pair: the European Central Bank and the US Federal Reserve. Their interest rate decisions, plus inflation and jobs reports from both economies, cause the sharpest moves. Before a scheduled release, the price often stalls. Just after it, the price can jump past your stop level, and your order may fill at a worse price than you set.

Before you trade EUR/USD, check whether the dollar is moving against several currencies or the euro is moving on its own. If USD/JPY is rising and GBP/USD is falling at the same time, the dollar is gaining across the board: the move is about the dollar, so watch US data and the Fed. If only EUR/USD is moving while the other dollar pairs stay quiet, the move is about the euro, so look for euro news and the ECB.

If you hold a trade overnight, your broker applies a swap: a small daily charge or credit that comes from the gap between euro and dollar interest rates. Buying the pair means holding euros and selling it means holding dollars; holding the currency with the higher interest rate tends to earn a credit, and holding the one with the lower rate tends to cost you.

Activity is highest when European and US business hours overlap: afternoon in Europe, morning in the US. The timeline below shows the London and New York sessions in approximate UTC hours, with the overlap highlighted. The Asian morning is usually the quietest stretch for this pair.

London and New York sessions for EUR/USD, with the overlap highlighted

Checks before you place a EUR/USD trade

• Say the trade as "I am buying euros" or "I am selling euros". If that sentence does not match your view, do not place the order.
• If the loss at your stop is more than you planned to risk, cut the size, don't move the stop.
• Look at the economic calendar for euro and dollar releases due in the next few hours.
• Compare the current spread with your stop distance. In the illustrative example, a 1.2-pip spread on a 20-pip stop uses about 6% of your room before the price has moved at all.
• If you hold overnight, check whether the swap on this pair is a charge or a credit for your direction.

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