Pips, lots and leverage in forex: what they are and how to calculate them

What is a pip

A pip is the standard unit for measuring price changes. On most pairs it is 0.0001 (the fourth decimal place); on pairs involving the Japanese yen it is 0.01.

Example: if EUR/USD moves from 1.1000 to 1.1025, it has moved 25 pips.

Lots

Position size is measured in lots:

• Standard lot: 100,000 units of the base currency
• Mini lot: 10,000 units (0.1 lots)
• Micro lot: 1,000 units (0.01 lots)

How much is a pip worth

On EUR/USD, with a standard lot, 1 pip is worth about 10 US dollars. With a micro lot it is about 0.10 dollars. The exact value depends on the pair and your account currency: the platform calculates it automatically.

Example: 20 pips on a EUR/USD micro lot are worth about 2 dollars; on a standard lot, about 200 dollars.

Financial leverage

Leverage lets you control a position larger than the capital you put up as margin. With 30:1 leverage, 1,000 euros of margin control a 30,000 euro position. For retail clients in the European Union the cap on major currency pairs is 30:1.

Leverage does not change the risk in itself: position size and stop loss determine it. But high leverage makes it easy to open an oversized position by mistake, and that is how accounts get wiped out.

How to proceed

Start with micro lots, decide how much you are willing to lose per trade and calculate position size accordingly. You will find the method in our position size guide.