What are pips and lots?

What are pips and lots?

Lot

A lot is a number of currency units. A standard lot equal to 100,000 units of a base currency/your account currency. It means that if you want to trade EUR/USD, you will need $100,000. There are two other well-known lot sizes. They are a mini lot (equal to 10,000) and a micro lot (equal to 1,000 units).

To open a trade, you will need to decide how much money to put into it. The term ‘lot’ is closely linked to such notions as ‘leverage’ and ‘pip’. Let’s get deeper into this topic.

Leverage

A great benefit of trading at the Forex market is leverage. As we already said, a standard lot is $100,000, but it doesn’t mean that you have to invest this huge amount of money by yourself. Your broker can help you. The standard leverage is 1:100. It means that if you want to trade one standard lot of the pair, you have to deposit just $1,000. Your broker will invest the remaining $99,000.

There are other sizes of the leverage depending on a broker. You can check the leverages provided by FBS: FBS Leverage.

Pip

Reading analytic articles or news you definitely saw such phrase “the pair rose/declined by … pips”. What is the pip and how does it affect the amount of money you earned?

A pip means “Percentage in Point”. It represents the smallest change a currency pair can make. Usually, a pair is counted in four decimal points, for example, a quote of GBP/USD is given like this: 1.3463. However, there are some pairs that have 2 decimal points. For example, the US dollar/Japanese yen is quoted like 109.70. A pip is represented by the last decimal of a price/quotation.

If EUR/USD changed from 1.0800 to 1.0805, this would be a change of 5 pips. If USD/JPY changed from 120.00 to 120.13, this would be a change of 13 pips.

Note that some Forex brokers also count the 5th and the 3rd decimal places respectively. They are called “pipettes” and make the spread calculation more flexible.

One Pip

Let’s learn how to count a value of one pip.

We will use the USD/JPY pair as an example. The exchange rate is 110.80.

(0.01 (a pip)/110.80(an exchange rate) X 100,000 (a standard lot) = $9,03 per pip

one pip formula

Let’s count a pair where the USD is not a base currency. For example, EUR/USD. The exchange rate is 1.15.

(0.0001/1) X 100,000 = $10 per pip

pip formula

Pip, Lot and Leverage all together

You have learned what leverage, lot, and pip are. Now it’s time to use your knowledge.

Imagine you trade the EUR/USD pair with 100,000 lot size. You deposited $1,000. Your leverage is 1:100. You made a buy trade at 1.15, the pair went up and you closed your position at 1.1550. It means you earned 50 pips.

Above we have calculated that for EUR/USD 1 pip = $10.

You earned 50 pips, so it means that your profit would be $500.

However, you should remember that the amount of your profit will depend on a lot size, a number of lots you trade, a currency pair and your account currency.

Imagine you traded without a leverage. You deposited $1,000. 0.0001 X 1,000 = 0.1 per pip

As a result, you would earn just $5.

ratio of Pip Lot Leverage

Now you know how leverage, lot, and pip are linked. And you even can calculate your profit. It’s time to practice your knowledge! OPEN YOUR ACCOUNT

Latest news

Risk-averse sentiment prevails on the market

The market sentiment deteriorated because of the election uncertainty and worries about rising virus cases all over the world. Let's make some analysis!

EUR dropped as Covid-19 engulfed Europe

The focus of traders’ attention shifted from Brexit and the US stimulus to the coronavirus . The WHO claimed that Europe become the new Covid-19 epicenter.

Is the Canadian economy recovering?

Canada will publish the monthly GDP growth on October 30 at 14:30 MT time.

Frequently asked questions

  • How to get the Trade 100 bonus?

    Boost your trading skills with free $100 from FBS. To activate this option, open a Trade 100 bonus account with $100 in it. Use the money during 30 days of active trading and trade five lots.  If you succeed, you can get your profit of $100. It is a win-win offer! Not only do you get a chance to profit, but you can also test the real markets and train your FX skills. 

  • How to start trading?

    If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.

  • How to open an FBS account?

    Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. 

  • How to withdraw the money you earned with FBS?

    The procedure is very straightforward.  Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.

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