Understanding Pips and Lots

Before placing your first trade, you must understand how profits and losses are measured.

What is a Pip?


Definition

• Pip = Percentage in Point
• Smallest price movement in forex
• For most pairs: 4th decimal place
• EUR/USD 1.1050 to 1.1051 = 1 pip

JPY Pairs Exception

• JPY pairs use 2nd decimal
• USD/JPY 150.50 to 150.51 = 1 pip

Pipettes

• 5th decimal = pipette (0.1 pip)
• EUR/USD 1.10505 shows half pip

What is a Lot?

Standard Lot

• 100,000 units of base currency
• 1 pip = roughly $10

Mini Lot

• 10,000 units
• 1 pip = roughly $1

Micro Lot

• 1,000 units
• 1 pip = roughly $0.10

Nano Lot

• 100 units
• 1 pip = $0.01

Calculating Pip Value

Pip Value = (Pip / Exchange Rate) x Lot Size

Key Takeaways

1. Start with micro lots
2. Calculate pip value before trading
3. Know your risk per pip
4. Position size determines actual risk