Forex is commonly traded in specific amounts called lots, or basically the number of currency units you will buy or sell.
A “lot” is a unit measuring a transaction amount.
When you place orders on your trading platform, orders are placed in sizes quoted in lots.
It’s like an egg carton (or egg box in British English). When you buy eggs, you usually buy a carton (or box). One carton includes 12 eggs.
The standard size for a lot is 100,000 units of currency, and now, there are also mini, micro, and nano lot sizes that are 10,000, 1,000, and 100 units.
| LOT | NUMBER OF UNITS |
|---|---|
| Standard | 100,000 |
| Mini | 10,000 |
| Micro | 1,000 |
| Nano | 100 |
Some brokers show quantity in “lots”, while other brokers show the actual currency units.As you may already know, the change in a currency value relative to another is measured in “pips,” which is a very, very small percentage of a unit of currency’s value.
To take advantage of this minute change in value, you need to trade large amounts of a particular currency in order to see any significant profit or loss.
Let’s assume we will be using a 100,000 unit (standard) lot size. We will now recalculate some examples to see how it affects the pip value.
- USD/JPY at an exchange rate of 119.80: (.01 / 119.80) x 100,000 = $8.34 per pip
- USD/CHF at an exchange rate of 1.4555: (.0001 / 1.4555) x 100,000 = $6.87 per pip
In cases where the U.S. dollar is not quoted first, the formula is slightly different.
- EUR/USD at an exchange rate of 1.1930: (.0001 / 1.1930) X 100,000 = 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip
- GBP/USD at an exchange rate of 1.8040: (.0001 / 1.8040) x 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.
Here are examples of pip values for EUR/USD and USD/JPY, depending on lot size.
| PAIR | CLOSE PRICE | PIP VALUE PER: | ||||
|---|---|---|---|---|---|---|
| Unit | Standard lot | Mini lot | Micro lot | Nano lot | ||
| EUR/USD | Any | $0.0001 | $10 | $1 | $0.1 | $0.01 |
| USD/JPY | 1 USD = 80 JPY | $0.000125 | $12.5 | $1.25 | $0.125 | $0.0125 |
Your broker may have a different convention for calculating pip values relative to lot size but whatever way they do it, they’ll be able to tell you what the pip value is for the currency you are trading at that particular time.
In other words, they do all the math calculations for you!
As the market moves, so will the pip value depending on what currency you are currently trading.
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