Forex · Beginner · 4 min

Pips, lots, pip value

You can calculate how much a one-pip move is worth for different position sizes, and why lot size decides your risk far more than the pip count.

20 pips: $2 or $200

Forex traders talk in pips: the pair moved 20 pips, my stop is 30 pips away, I made 50 pips today. It sounds precise, and small.

But a pip says nothing about money until you know the position size. Twenty pips can be worth two dollars or two hundred, depending on how much was traded. This lesson explains the two units that decide every forex result.

Pip × size = money

A pip is the usual smallest price step in a currency pair. The CFTC defines a pip as the smallest unit of a price. By market convention:

for most pairs, quoted with four decimals, one pip is 0.0001,
for pairs quoted with two decimals, such as most yen pairs, one pip is 0.01.

Many brokers show a fifth decimal, a fraction of a pip.

A lot is a standard position size. The NFA describes three common sizes:

Standard lot: 100,000 units of the base currency.
Mini lot: 10,000 units.
Micro lot: 1,000 units.

The pip value is the position size times one pip. For EUR/USD, where the dollar is the quote currency:

standard lot: 100,000 × 0.0001 = 10 dollars per pip,
mini lot: 1 dollar per pip,
micro lot: 0.10 dollars per pip.

For pairs where your account currency is not the quote currency, the pip value has to be converted, so it changes slightly with the exchange rate.

Because leveraged forex accounts let you open large positions with little money, the lot size is the most important number for risk. A beginner who opens a standard lot with a small account can lose a large share of it on a normal daily move.

25 pips × size

EUR/USD rises from 1.0850 to 1.0875. That is 0.0025, or 25 pips.

Micro lot: 25 × 0.10 = 2.50 dollars.
Mini lot: 25 × 1 = 25 dollars.
Standard lot: 25 × 10 = 250 dollars.

A fictional trader with an account of 2,000 dollars sets a stop 40 pips away. With a micro lot, the risk is 4 dollars, 0.2% of the account. With a standard lot, it is 400 dollars, 20% of the account, on a single trade.

Common mistakes

Thinking in pips instead of money. Pips only matter combined with size.
Opening standard lots on small accounts. Normal moves can wipe out much of the balance.
Forgetting the fractional pip. A fifth decimal is a tenth of a pip, not a full one.
Ignoring currency conversion. Pip values differ by pair and account currency.

The takeaway

A pip is the usual smallest price step, 0.0001 for most pairs. Its value depends on position size: on 100,000 euros in EUR/USD, one pip is 10 dollars.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the lot size where a 50-pip loss costs about 500 dollars in EUR/USD.

Tap the chart.

50 pips × 10 dollars per pip = 500 dollars on a standard lot.
2EUR/USD moves from 1.0850 to 1.0875. How many pips is that?

0.0025 ÷ 0.0001 = 25 pips.
3Which lot sizes does the NFA describe as common in forex?

An NFA interpretive notice lists these three as the usual lot sizes.
4For USD/JPY, the usual pip is…

Pairs quoted with two decimals, such as most yen pairs, use 0.01 as the pip.

of 4 correct.