Pips, lots and leverage

Pips: how price movement is measured

A pip is the standard unit of price movement. For most pairs it is the fourth decimal place (0.0001). For pairs quoted in Japanese yen it is the second decimal place (0.01).

If EUR/USD moves from 1.0850 to 1.0875, it has moved 25 pips.

Lots: how position size is measured

Position size is expressed in lots. On a USD-quoted pair such as EUR/USD, the value of one pip depends directly on your lot size:

• Standard lot: 100,000 units — about $10 per pip.
• Mini lot: 10,000 units — about $1 per pip.
• Micro lot: 1,000 units — about $0.10 per pip.

Leverage and margin

Leverage lets you control a large position with a smaller deposit, called margin. At 1:30 leverage, a $30,000 position requires about $1,000 of margin.

Leverage does not change how much a pip is worth — it changes how much capital you need to open the trade. That is exactly why it is dangerous: it makes it easy to open positions far larger than your account can absorb.

The practical rule

Decide what you are willing to lose on the trade first, then work out the position size from your stop-loss. Never start from how much leverage your broker offers.