Transaction Costs and Market Makers

Market makers are compensated for allowing clients to enter the market. They take part or all of the spread in all currency pairs traded. In a common example, EUR/USD, the spread is typically 3 pips (percentage in point) or 3/100 of a cent in this example. Thus prices are quoted with both bid and offer prices (e.g., Buy EUR/USD 1.4900, Sell EUR/USD 1.4903).[citation needed]
That 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 EUR/USD translate to $30 paid by the client to the market maker. However, a pip is not always $10. A pip is 1/100th of a cent (or whatever), and the currency pairs are always purchased by buying 100,000 of the base currency.
For the pair EUR/USD, the quote currency is USD; thus, 1/100th of a cent on a pair with USD as the quote currency will always have a pip of $10. If, on the other hand, your currency pair has Swiss francs (CHF) as a quote instead of USD, then 1/100th of a cent is now worth around $9, because you are buying 100,000 of whatever in Swiss francs.

Financial Instruments..
There are several types of financial instruments commonly used.
Forwards One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years. Futures Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts. Swaps The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not contracts and are not traded through an exchange. Spot A spot transaction is a two-day delivery transaction for most currency pairs (but one-day for USD/CAD and some others), as opposed to the futures contracts, which are usually three months. This trade represents a "direct exchange" between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the Spot market.