Ready to trade with a regulated broker? You’ll be redirected through our secure transition page.
Visit XM
Three units — pips, lots, and pip value — sit underneath every forex trade. Master them and your position sizing becomes mechanical instead of guesswork.
What is a pip?
A pip ("percentage in point") is the smallest standardised price increment in forex. For most pairs that is the fourth decimal — 1.08501 to 1.08511 is one pip. For JPY-quoted pairs (USD/JPY, EUR/JPY, GBP/JPY), the pip is the second decimal — 150.31 to 150.32 is one pip.
Some brokers display a fractional pip (a "pipette") as the fifth decimal. It is one-tenth of a pip — useful for precision, never for risk math.
What is a lot?
| Lot size | Units of base currency | Pip value (USD-quoted) |
|---|---|---|
| Standard lot | 100,000 | ~$10.00 |
| Mini lot | 10,000 | ~$1.00 |
| Micro lot | 1,000 | ~$0.10 |
| Nano lot | 100 | ~$0.01 |
Calculating pip value precisely
For pairs where the quote currency is USD (EUR/USD, GBP/USD), pip value on a standard lot is exactly $10. For other pairs the formula is:
Pip value = (1 pip ÷ Exchange rate) × Lot size, then converted to your account currency.
The complete position sizing formula
For risk-defined trading, this single formula does the entire job:
Lots = Risk $ ÷ (Stop pips × Pip value per lot)
Example. Equity $5,000. Risk 1% = $50. Stop loss 20 pips on EUR/USD (pip value $10/lot). Lot size = 50 ÷ (20 × 10) = 0.25 standard lots = 2.5 mini lots.
Common mistakes
- Trading the same lot size on every pair regardless of pip value.
- Ignoring that JPY pairs have a pip at the second decimal.
- Forgetting commission costs on raw spread accounts when sizing tight stops.
