A pip is the unit traders use to measure a move in a currency price, and a lot is the unit they use for position size. Put the two together and you can say what a move is worth in dollars before you trade. On EUR/USD, for example, one pip on one standard lot is worth $10.
What you will learn
- What a pip and a pipette are, and why yen pairs are different
- How big a standard, mini and micro lot are
- How to work out what one pip is worth in US dollars, for any currency pair
- How to turn a dollar risk into a lot size
What is a pip?
For most currency pairs a pip is a price move of 0.0001, a change in the fourth decimal place. If EUR/USD rises from 1.0850 to 1.0875, it has moved 25 pips. The name is usually read as short for "percentage in point".
What is a pipette?
Most platforms quote currencies to one more decimal than the pip. That fifth decimal is a pipette, worth a tenth of a pip. EUR/USD moving from 1.08452 to 1.08457 has moved 5 pipettes, which is half a pip. On a five-decimal quote, read the first four decimals as whole pips and the last digit as tenths.
Yen pairs use the second decimal
Pairs quoted in Japanese yen carry fewer decimals, so for them a pip is 0.01. USD/JPY rising from 150.20 to 150.65 has moved 45 pips. A pipette on a yen pair is 0.001.
Gold, indices and shares are usually measured in points rather than pips, and what a point is worth depends on each instrument's contract details. Check the symbol details on the platform before you size a trade outside forex.
What is a lot in forex?
A lot is a set trade size, counted in units of the base currency, which is the first currency in the pair.
- A standard lot is 100,000 units, entered as 1.00 on most platforms.
- A mini lot is 10,000 units, entered as 0.10.
- A micro lot is 1,000 units, entered as 0.01.
Buying 1 standard lot of EUR/USD means buying 100,000 euros against the dollar. Lots scale in a straight line, so 0.35 lots is 35,000 units.
How much is a pip worth?
Pip value is the pip size times the number of units. The answer comes out in the quote currency, the second currency in the pair, and when that currency is the US dollar the sum is finished.
For EUR/USD, one standard lot gives 0.0001 × 100,000 = $10 per pip. A mini lot is $1 per pip and a micro lot is $0.10. So a pip is worth $10 only on a standard lot of a pair quoted in dollars, such as EUR/USD, GBP/USD or AUD/USD.
Say you hold 0.30 lots of EUR/USD, which is 30,000 units. One pip is 0.0001 × 30,000 = $3. If the price moves 40 pips in your favour, you are up 40 × $3 = $120.
Converting pip value into dollars
When the dollar is the base currency, divide the pip value by that pair's price. With USD/JPY at 150.00, one standard lot gives 0.01 × 100,000 = 1,000 yen per pip, and 1,000 ÷ 150.00 = $6.67 per pip. With USD/CHF at 0.8000, one standard lot gives 10 Swiss francs per pip, and 10 ÷ 0.8000 = $12.50.
When neither currency is the dollar, convert the quote currency at its own dollar rate. A standard lot of EUR/GBP gives 10 pounds per pip. With GBP/USD at 1.3000, that is 10 × 1.3000 = $13.00 per pip.
These values move with the exchange rate. If USD/JPY falls to 140.00, the same lot is worth 1,000 ÷ 140.00 = $7.14 per pip.
How do you turn a dollar risk into a lot size?
Pip value lets you work backwards from the amount you are prepared to lose. Say you want to risk $100 on a EUR/USD trade with a stop loss 25 pips from your entry.
- Divide the risk by the stop distance: $100 ÷ 25 pips = $4 per pip.
- Divide by the pip value of one standard lot: $4 ÷ $10 = 0.40 lots.
- Check it: 0.40 lots is 40,000 units, so one pip is $4, and 25 pips is $100.
The same numbers show how fast size adds up. On a $10,000 Classic account the daily loss limit is $500. That is 50 pips on one standard lot of EUR/USD, or 500 pips on a mini lot. The position size calculator does this sum for you, and the position sizing lesson builds it into a full method.
Check your understanding
EUR/USD moves from 1.09120 to 1.09085. How many pips is that?
3.5 pips. The difference is 0.00035, which is 3 whole pips and 5 pipettes.
What is one pip worth on 0.50 lots of USD/JPY when USD/JPY is 125.00?
$4.00. 0.50 lots is 50,000 units, so one pip is 0.01 × 50,000 = 500 yen, and 500 ÷ 125.00 = $4.00.
Is a 100-pip move always 1% of a $10,000 account?
No. 1% of $10,000 is $100, and 100 pips equals $100 only at $1 per pip, for example on a mini lot of EUR/USD. On a standard lot the same 100 pips is $1,000, or 10% of the account.
Key points
- A pip is 0.0001 on most pairs and 0.01 on yen pairs. A pipette is a tenth of a pip.
- A standard lot is 100,000 units, a mini lot 10,000 and a micro lot 1,000.
- Pip value is pip size times units, in the quote currency. A standard lot of EUR/USD is worth $10 a pip.
- Convert other pairs into dollars at the current exchange rate, and work it out again when the rate moves.
- Set your lot size from the dollars you will risk and the distance to your stop.
Next lesson: Leverage and margin: calculate the margin a trade needs
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