Pips, lots and pip value

Profit and loss in forex comes down to two numbers: how far the price moved, and how big your position was. Pips measure the first and lots measure the second. Put them together and you get pip value, the figure that tells you what each move is worth in money.

What a pip is

A pip is the standard unit for measuring a change in an exchange rate.

• For most pairs, one pip is 0.0001, the fourth decimal place.
• For pairs quoted in Japanese yen, one pip is 0.01, the second decimal place.

If EUR/USD moves from 1.1000 to 1.1050, it has moved 0.0050, which is 50 pips. If USD/JPY moves from 150.00 to 150.40, it has moved 0.40, which is 40 pips.

Many platforms show one extra decimal place (1.10005 or 150.005). That last digit is a pipette, or fractional pip, worth one tenth of a pip. Do not confuse it with a full pip when you count distances.

What a lot is

A lot is a standard trade size, measured in units of the base currency.

So 0.25 lots of EUR/USD is 25,000 euros, and 0.03 lots is 3,000 euros. Most platforms let you trade in steps of 0.01 lots, which gives you fine control over size.

Pip value: what one pip is worth

Pip value is the size of one pip multiplied by the number of units you hold. The answer is always in the quote currency first.

Pip value = pip size × units

Worked example 1: EUR/USD

The quote currency is USD, so the pip value comes out directly in dollars.

• One standard lot: 0.0001 × 100,000 = 10 USD per pip
• One mini lot: 0.0001 × 10,000 = 1 USD per pip
• One micro lot: 0.0001 × 1,000 = 0.10 USD per pip

This holds for any pair quoted in USD, such as GBP/USD or AUD/USD: one pip on one standard lot is worth 10 US dollars.

Now a trade. You buy 0.50 lots of EUR/USD at 1.1000 and close at 1.1050 (example prices, ignoring the spread).

• Distance: 1.1050 − 1.1000 = 0.0050 = 50 pips
• Pip value at 0.50 lots: 0.0001 × 50,000 = 5 USD
• Result: 50 pips × 5 USD = 250 USD profit

Had the price fallen 50 pips instead, the same arithmetic would give a 250 USD loss.

Worked example 2: USD/JPY

Here the quote currency is the yen, so the pip value is in yen first.

• One standard lot: 0.01 × 100,000 = 1,000 JPY per pip

If your account is in US dollars, convert at the current rate. With USD/JPY at 150.00 (an example price):

1,000 JPY ÷ 150.00 = about 6.67 USD per pip

Because the conversion uses the live rate, the dollar pip value of a yen pair drifts as the price moves. At 140.00 it would be 1,000 ÷ 140 = about 7.14 USD; at 160.00 it would be 1,000 ÷ 160 = 6.25 USD.

Now a trade. You buy 1 standard lot of USD/JPY at 150.00 and close at 150.40.

• Distance: 150.40 − 150.00 = 0.40 = 40 pips
• Profit in yen: 40 pips × 1,000 JPY = 40,000 JPY
• Converted at the closing rate: 40,000 ÷ 150.40 = about 265.96 USD

Other pairs

The same rule works everywhere. For EUR/GBP, one pip on one standard lot is 0.0001 × 100,000 = 10 GBP, which your platform then converts into your account currency. Most platforms do this conversion for you, but knowing the logic lets you check it.

Using pip value to size a position

Pip value is what turns a stop-loss distance into a money amount, which is how you control risk. The formula is:

• Risk amount = account balance × risk percentage
• Position size (lots) = risk amount ÷ (stop distance in pips × pip value per lot)

Example: your account is 5,000 USD and you choose to risk 1% on a EUR/USD trade with a 25-pip stop.

• Risk amount: 5,000 × 0.01 = 50 USD
• Position size: 50 ÷ (25 × 10) = 50 ÷ 250 = 0.20 lots

Check: 0.20 lots is worth 2 USD per pip, and 25 pips × 2 USD = 50 USD. The numbers agree.

Remember that a stop-loss can be filled at a worse price in fast markets, so the real loss can exceed the planned amount.

Key takeaways

• One pip is 0.0001 for most pairs and 0.01 for yen-quoted pairs; the extra digit on many platforms is a pipette.
• A standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000.
• On pairs quoted in USD, one pip on one standard lot is worth 10 USD; on USD/JPY it is 1,000 JPY, about 6.67 USD at a rate of 150.00.
• Pip value lets you turn a stop distance into a money risk and size each position deliberately.