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Pips, Lots and Contract Size Explained
A pip is the smallest standard move in a currency pair. Learn what one pip is worth, how lot size sets that value, and what a move costs you.
What a pip is in forex
A pip is the smallest standard step in a currency pair’s price. For most pairs it is the fourth decimal place, 0.0001.
EUR/USD moving from 1.0850 to 1.0851 is one pip. From 1.0850 to 1.0900 is fifty pips.
Pairs involving the Japanese yen are the exception. They are quoted to two decimal places, so one pip is 0.01. USD/JPY from 156.20 to 156.21 is one pip.
Most platforms show one digit more than the pip: 1.08503 rather than 1.0850. That last digit is a fractional pip, often called a pipette, and it is one tenth of a pip. A price ticking from 1.08503 to 1.08507 has moved four pipettes, less than half a pip. Read that as four pips and every calculation after it is ten times too big.
What a pip is worth in money
A pip is a distance, not an amount. What it is worth to you depends entirely on the size of your position.
When the US dollar is the quote currency — the second one in the pair, as in EUR/USD or GBP/USD — the arithmetic is fixed and worth memorising:
- One standard lot, 100,000 units: about $10 a pip.
- 0.10 lots, 10,000 units: about $1 a pip.
- 0.01 lots, 1,000 units: about $0.10 a pip.
When the dollar is not the quote currency, the value of a pip in dollars shifts with the exchange rate, so it is not a figure you learn once. Your platform shows the value per pip in the order window. Check it before you confirm, not after.
If you are unsure which currency sits on which side of a quote, how to read a forex quote covers base, quote and spread.
What a lot is and why contract size matters
A lot is the unit trade size is measured in. One standard lot of a currency pair is 100,000 units of the base currency, so 1.00 lot of EUR/USD is a position on 100,000 euros.
Contract size is the number of units inside one lot, and it differs by instrument. Gold, quoted as XAU/USD, is commonly 100 ounces per lot, so a $1 move in gold is worth roughly $100 on one lot. Indices such as the US 500 are priced per index point per contract, and are not measured in pips at all.
The numbers you learn on EUR/USD do not carry across. Before trading an instrument for the first time, read its contract size, minimum volume and step size. Those are published for every instrument in the account specifications.
Micro, mini and standard lots compared
| Lot | Volume you type | Units of base currency | One pip, USD-quoted pair |
|---|---|---|---|
| Standard | 1.00 | 100,000 | about $10 |
| Mini | 0.10 | 10,000 | about $1 |
| Micro | 0.01 | 1,000 | about $0.10 |
Volume is the number you type into the order ticket, and the gap between 1.00 and 0.10 is a factor of ten on every pip that follows.
Position size is the part you set yourself. The market decides how many pips it moves; you decide what each pip is worth. Leverage and margin changes how much of your money is held while the position is open, but it does not change the value of a pip by a single cent.
Worked example: what a 10-pip move costs on 0.10 lots
You open 0.10 lots of EUR/USD: 10,000 euros of exposure, about $1 a pip.
The quote is 1.0850 / 1.0852. The two-pip gap is the spread, typical for this pair in normal conditions rather than fixed. You buy at the ask, 1.0852, and you will close at the bid.
The moment the order fills, the position shows about minus $2. Nothing has moved. That is the spread, paid on entry.
The price then moves ten pips against you and the bid is 1.0840. Closing there gives twelve pips, about $12 off your balance. Had it moved ten pips the other way, the bid would be 1.0860 and closing would give eight pips, about $8.
Same ten pips, two different amounts. You pay the spread on entry whichever direction you choose, so a move against you always costs more than an equal move in your favour returns.
Key takeaways
- A pip is a distance on the price and a lot is the size of the position; the money at stake is the two multiplied together.
- On a dollar-quoted pair, one pip is worth about $10 per standard lot, $1 per 0.10 lots and $0.10 per 0.01 lots.
- Contract size differs by instrument, so pip values learned on EUR/USD do not transfer to gold or to an index.
- The extra digit most platforms show is a fractional pip, one tenth of a pip, and reading it as a full pip overstates every calculation tenfold.
Frequently asked questions
What is a pip in forex?
A pip is the smallest standard price movement in a currency pair. For most pairs it is 0.0001, the fourth decimal place, so EUR/USD moving from 1.0850 to 1.0851 is one pip. Yen pairs are quoted to two decimals, which makes one pip 0.01 on those.
How much is one pip worth?
That depends on your position size. On a dollar-quoted pair, one pip is about $10 on a standard lot, $1 on 0.10 lots and $0.10 on 0.01 lots. On pairs not quoted in dollars the value moves with the exchange rate, so check the figure your platform shows.
What is the difference between a pip and a point?
A pip is the standard unit on currency pairs. A point usually means the smallest increment an instrument quotes, which on many platforms is the fifth decimal, one tenth of a pip. On an index a point means one index point. The words are used loosely, so read the contract specification rather than assume.
Practise it before it costs anything
A demo account runs the same platform on the same live prices, with nothing at stake.
