Pips, points, lots: a clean explainer for new forex traders
Forex has its own dialect. Pips, points, lots, and pip value all sound technical, but the ideas are simple once you see them in numbers.
What a pip is
A pip is the smallest standard price move in a forex pair. For most pairs, one pip is 0.0001. For pairs that include the Japanese yen, one pip is 0.01.
Example: EURUSD goes from 1.1000 to 1.1005. That is a five pip move. USDJPY goes from 150.20 to 150.25. That is also a five pip move.
What a point is
A point, sometimes called a pipette or fractional pip, is one tenth of a pip. Most brokers now quote prices to one extra decimal for precision.
Example: EURUSD goes from 1.10000 to 1.10005. That is half a pip, or 5 points. In yen pairs, points are at 0.001.
Most retail traders think in pips, not points, unless they are scalping very small moves.
What a lot is
A lot is a standardized trade size. There are three sizes most retail traders use:
- Standard lot: 100,000 units of the base currency.
- Mini lot: 10,000 units of the base currency.
- Micro lot: 1,000 units of the base currency.
If you trade 1 standard lot of EURUSD, you are trading 100,000 euros. If you trade 1 mini lot, you are trading 10,000 euros. The exact dollar value depends on the exchange rate.
Pip value
Pip value is how much money one pip is worth, given the lot size you are trading. For pairs where the US dollar is the second currency (like EURUSD or GBPUSD), the math is simple:
- 1 standard lot, 1 pip = $10.
- 1 mini lot, 1 pip = $1.
- 1 micro lot, 1 pip = $0.10.
For pairs where the US dollar is the first currency (like USDJPY), the pip value changes slightly with the exchange rate, but the table above is close enough for most planning.
CalcMyTrade computes pip value automatically for the pair you choose, so you do not have to do this by hand.
Why this matters for risk
Knowing the pip value lets you connect pips to dollars. Example:
- Your stop is 50 pips away.
- Your pip value is $1 (one mini lot).
- Your risk is 50 pips times $1 = $50.
If you want to risk a fixed dollar amount and you know your stop in pips, the position size in lots is straightforward to find.
Worked example
Account size: $10,000. Risk: 1 percent, so $100. Trade: long EURUSD at 1.0850 with a stop at 1.0830. That is a 20 pip stop.
Required pip value: $100 divided by 20 pips = $5 per pip.
Lot size: $5 per pip means half a mini lot, or 5 micro lots, or 0.05 standard lots.
Leverage in plain language
Leverage lets you control a position larger than your cash. For example, with 50 to 1 leverage, you can control $50,000 of currency with $1,000 of your money.
Leverage does not change risk per pip. It just changes how much margin the broker holds. The thing that controls risk is position size and stop distance, not the leverage on offer. Many new traders confuse the two and over trade.
Spreads and slippage
When you place a market order, your real cost is the bid ask spread plus any slippage. On EURUSD, spreads are usually 0.5 to 2 pips during normal hours. On exotic pairs and during news events, spreads can widen sharply.
Plan your stop with the spread in mind. A 5 pip stop on a 2 pip spread leaves very little room. Wider stops with smaller positions are usually more durable than tight stops with bigger positions.
A quick glossary
- Pip. The smallest standard price move, 0.0001 on most pairs, 0.01 on yen pairs.
- Point. One tenth of a pip.
- Lot. A trade size. Standard, mini, or micro.
- Pip value. The dollar value of one pip at a given lot size.
- Leverage. The ratio of position size to your own money.
- Margin. The amount of your own money the broker holds while the trade is open.
Putting it all together
- Decide your risk in dollars.
- Set your entry and stop in pips.
- Compute pip value: dollars at risk divided by pips at risk.
- Choose lot size from pip value.
- Place the trade.
CalcMyTrade does steps three and four in seconds for any forex pair. Once you have done it by hand a few times, you understand the math. Then the tool just removes the friction.