What Are Pips and Lots?
A pip is how a price moves; a lot is how much you trade. Together they decide how much money is on the line. Here is how both work, with examples.
Two small words do a lot of work in forex: pip and lot. One measures how far a price has moved; the other measures how big your trade is. Multiply them together and you get the only number that really matters: how much money you just made or lost.
What a pip is
A pip (short for “percentage in point”) is the standard smallest unit by which an exchange rate is normally quoted to move.
For most currency pairs, a pip is the fourth decimal place:
EUR/USD moves from 1.0840 to 1.0841. That is a one-pip move.
For pairs involving the Japanese yen, prices are quoted to two decimals instead, so a pip is the second decimal place:
USD/JPY moves from 156.20 to 156.21. Also one pip.
Many brokers quote one extra digit beyond the pip: the fifth decimal (or third, for yen pairs). That smaller fraction is called a pipette, or fractional pip. So a price shown as 1.08405 is sitting half a pip above 1.08400.
Counting pips is just subtraction. If EUR/USD rises from 1.0840 to 1.0875, that is a move of 0.0035, or 35 pips. Over a run of trading days, those moves accumulate into the shape you see on a chart: here is a series drifting up by roughly 60 pips.
What a lot is
A pip move only becomes money once you know how much currency you are trading. That quantity is measured in lots.
| Lot type | Units of the base currency |
|---|---|
| Standard lot | 100,000 |
| Mini lot | 10,000 |
| Micro lot | 1,000 |
So buying “one mini lot of EUR/USD” means buying 10,000 euros’ worth of the pair. Most brokers also allow sizes in between, right down to fractional micro lots, which is how a small account can take a sensibly-sized position.
Putting them together: pip value
Pip value is what a one-pip move is worth to your position. It depends on the lot size and on the pair.
The simplest case is a pair where the US dollar is the quote currency: EUR/USD, GBP/USD, AUD/USD. There, the maths is clean:
| Lot size | Value of one pip (USD-quoted pair) |
|---|---|
| Standard (100,000) | $10.00 |
| Mini (10,000) | $1.00 |
| Micro (1,000) | $0.10 |
That falls straight out of the arithmetic: one pip is 0.0001, and 0.0001 × 100,000 units = $10. For pairs where the dollar is not the quote currency, the pip value has to be converted into your account currency, so it shifts a little as exchange rates move, but your trading platform calculates and displays this for you.
A worked example
Suppose you buy two mini lots of EUR/USD, or 20,000 euros’ worth. Pip value is $1.00 per mini lot, so your position is worth $2.00 per pip.
- The pair rises 30 pips in your favour → 30 × $2.00 = +$60.
- The pair falls 30 pips against you → −$60.
Change one number (trade two standard lots instead) and pip value jumps to $20 per pip. The same 30-pip move is now $600, on a price change that, on the chart, looks identical.
The takeaway
A pip is the standard unit of price movement: the fourth decimal for most pairs, the second for yen pairs, with an optional fractional “pipette” beyond it. A lot is the size of your trade: 100,000 units (standard), 10,000 (mini), or 1,000 (micro). Pip value links the two, and for dollar-quoted pairs it is a tidy $10 / $1 / $0.10 per pip. Your profit or loss is simply pips moved × pip value, which means the position size you pick, not the size of the price move, is what determines the stakes.