Pips, Lots and Spreads Explained: The Building Blocks of Every Trade
Pips, Lots and Spreads Explained: The Building Blocks of Every Trade
What Is a Pip?
A pip is the standard unit of price movement. For most pairs it is the fourth decimal place (0.0001). For JPY pairs it is the second (0.01). The fifth decimal is a pipette, one tenth of a pip.
Lot Sizes
| Lot | Units | Pip value (EUR/USD) |
|---|---|---|
| Standard | 100,000 | ~$10 |
| Mini | 10,000 | ~$1 |
| Micro | 1,000 | ~$0.10 |
Beginners should start with micro lots.
The Spread
The bid is the price you sell at; the ask is the price you buy at. The difference is the spread. Every trade starts slightly negative by the spread amount, and spreads widen during news and quiet hours.
Other Trading Costs
- Commission: charged per lot on some accounts
- Swap: overnight interest for holding positions
Add all three costs when assessing a strategy, especially for short-term trading.
Putting It Together
A 20-pip gain on 0.5 standard lots of EUR/USD is about 20 x $5 = $100, minus costs. Use the Fino Groups Pip Calculator on the Tools page to calculate exact pip values.
Educational content only. Trading forex involves significant risk and is not suitable for every investor.