What is a pip?
A pip is the standard smallest unit of price movement in a currency pair. For most pairs it is the fourth decimal place (0.0001), and for pairs that include the Japanese yen it is the second decimal place (0.01). Some platforms show one more digit; that extra digit is called a pipette.
What is a lot?
A lot is the unit used to express trade size. In forex, one standard lot is usually defined as 100,000 units of the base currency, a mini lot as 10,000 units and a micro lot as 1,000 units. For other products such as indices, commodities and shares, the contract size depends on the product and is stated in its product information.
How pip value is calculated
Pip value shows how much the value of a position changes when the price moves by one pip. The calculation is simple: the pip size is multiplied by the number of units in the position, and the result is in the quote currency. If your account currency is different, the result has to be converted at the current rate.
Why size matters
The same price move has a small effect on a small position and a large effect on a large one. That makes position size the most direct tool for setting how much risk a trade carries. Thinking about lot size in terms of the loss you can accept, before any view on direction, makes the risk visible.
Example: pip value
Take a hypothetical EUR/USD position of 1 standard lot, or 100,000 euros. Since one pip is 0.0001, the pip value is 0.0001 × 100,000 = 10 US dollars. The same move is worth 1 US dollar on a 0.1 lot position and 0.10 US dollars on a 0.01 lot position. The numbers only illustrate the calculation.
The numbers in the example do not represent a likely outcome. Trading leveraged products carries a high level of risk, and you can lose all of the money you deposit.
Read the risk disclosure