Transaction Costs

It’s not such a bad job to be a market maker acting on behalf of retail clients in the Forex market. They do pocket a percentage of the spread in all traded currency pairs.

In a common example, EURUSD, the spread is typically 3 pips (3/100 of a percent).
Therefore all pric quoted with both bid and offer prices (e.g., Buy EURUSD 1.2000, Sell EURUSD 1.2003). The difference of 3 pips is the spread and can amount to a significant amount of money.

Because the typical standard lot is 100,000 units of the base currency, those 3 pips on EURUSD translate to $30 paid by the client to the market maker. Don’t forget…

Quote currencies

However, a pip is not always $10. A pip is 1/100th of a percent, and the currency pairs are always purchased by buying 100,000 of the quote currency, also often known as the counter currency.

For the currency pair EURUSD, the base currency is USD. Here, 1/100th of a percent on a pair with USD as the base will have a pip of $10, always. If, however, the pair has Swiss Francs (CHF) as a base rather than USD, 1/100th of a percent is worth approximately $8, because you are buying 100,000 worth of Swiss Francs.