Pips, pip value and lots: converting price movement into money

The three basic units

A pip is the smallest conventional increment of a quote. For the vast majority of pairs, one pip equals 0.0001; for pairs quoted in Japanese yen, one pip equals 0.01. Some platforms quote a further decimal place, a pipette, which is one tenth of a pip.

A lot is a unit of trade size. Retail markets follow the interbank convention: one standard lot equals 100,000 units of the base currency, one mini lot equals 10,000 units and one micro lot equals 1,000 units.

Pip value is the bridge that converts a pip into an amount of your account currency. It depends on the lot size and on the exchange rate between the quote currency and the dollar, or between the quote currency and your account currency.

Dollar-quoted pairs: a fixed pip value

When the quote currency is the dollar — EUR/USD, GBP/USD, AUD/USD — the calculation is simplest. Taking the 14 October 2026 EUR/USD close of 1.1151:

• One standard lot = 100,000 euro; notional value = 100,000 x 1.1151 = 111,510 dollars
• One pip = 0.0001, worth 100,000 x 0.0001 = 10 dollars
• One mini lot (10,000 units) is about 1 dollar per pip; one micro lot (1,000 units) is about 0.1 dollars per pip

Notice that pip value is independent of the exchange rate level and depends only on lot size. That is why dollar-quoted pairs are the easy ones to work with.

Yen-quoted pairs: pip value moves with the rate

When the quote currency is not the dollar, pip value needs one extra step. Taking the 14 October 2026 USD/JPY close of 158.29, one standard lot is 100,000 dollars:

• One pip = 0.01 yen, worth 100,000 x 0.01 = 1,000 yen
• Converted to dollars: 1,000 / 158.29 is approximately 6.32 dollars

So USD/JPY is worth roughly 6.32 dollars per pip, not 10 dollars, and that figure changes as the rate changes. Crosses such as EUR/GBP work the same way and need one further conversion using the quote currency's rate against your account currency.

Why you have to run the numbers yourself

Pip values differ substantially between pairs. Using a mental rule of "10 dollars per pip" to size USD/JPY or a cross will systematically overstate or understate risk. Lesson 08 uses pip value as an input to the position sizing formula, and getting pip value wrong means getting position size wrong.

Turning pip value into position size

Once pip value is known, position size follows directly. Assume account equity of 10,000 dollars, a per-trade risk limit of 1% (100 dollars) and a stop distance of 50 pips:

• Trading EUR/USD at 10 dollars per pip per standard lot: 100 / (50 x 10) = 0.2 standard lots
• Trading USD/JPY at about 6.32 dollars per pip per standard lot: 100 / (50 x 6.32) is approximately 0.32 standard lots

The order matters: fix the amount at risk first, then derive the lot size from the stop distance and pip value. Doing it the other way round — choosing how many lots to buy and only then asking what loss is bearable — is the most common cause of runaway position size.

Lesson summary and self-check

• One standard lot = 100,000 units of the base currency; mini 10,000; micro 1,000.
• One pip = 0.0001 for most pairs; 0.01 for yen pairs.
• For dollar-quoted pairs, a standard lot is worth about 10 dollars per pip; yen pairs are worth about 6 to 7 dollars and vary with the rate.
• Position size = amount at risk / (stop distance in pips x value per pip per standard lot).

Self-check: (1) With 5,000 dollars of equity, a 1% risk limit and a 40-pip stop, how many lots of EUR/USD should you trade? (2) Why can you not simply use 10 dollars per pip for GBP/JPY?