Pips, lots and position size

Currency prices move in tiny increments, so traders use special units to describe moves and trade sizes.

What is a pip?

A pip is the standard unit of movement. For most pairs it is the fourth decimal place, 0.0001. If EUR/USD moves from 1.1250 to 1.1275, it has risen 25 pips. For pairs quoted in Japanese yen the pip is the second decimal place, 0.01, so USD/JPY moving from 150.20 to 150.70 is a 50-pip move. Many brokers show an extra digit, a fraction of a pip often called a pipette.

What is a lot?

• A standard lot is 100,000 units of the base currency.
• A mini lot is 10,000 units.
• A micro lot is 1,000 units.

What a pip is worth

The value of one pip equals the pip size multiplied by the number of units, in the quote currency. On EUR/USD, one standard lot makes each pip worth 0.0001 × 100,000 = 10 US dollars. A 25-pip move on one standard lot is therefore worth 250 dollars, and on a micro lot it is worth 2.50 dollars.

When the quote currency is not your account currency, the pip value has to be converted. One pip on a standard lot of USD/JPY is 1,000 yen; at 150 yen per dollar that is about 6.67 dollars.

Why it matters

Knowing the pip value lets you work out in advance what a stop loss would cost. The position size calculator does this for you: enter your account size, the share you are willing to risk and your stop distance, and it returns the trade size.