⚠️ Risk warning: CFDs and leveraged forex are complex instruments with a high risk of losing money rapidly. Most retail accounts lose money. This content is education only, not investment advice or a recommendation.
Profit and loss in trading is measured in small price steps and position sizes. Get these two ideas right and every later lesson becomes easier.
What is a pip?
A pip is the standard unit of movement in a currency pair. For most pairs it is the fourth decimal place: EUR/USD moving from 1.1150 to 1.1151 is one pip. For pairs quoted in Japanese yen it is the second decimal: USD/JPY from 151.20 to 151.21 is one pip. Many platforms show one extra digit (1.11505); that last digit is a fraction of a pip, often called a point.
What is a lot?
Position size is measured in lots. In forex one standard lot is 100,000 units of the base currency. Most brokers let you trade down to 0.01 lot (a “micro lot”, 1,000 units). For gold, one lot is commonly 100 troy ounces, but always check the contract specification in your platform, because brokers differ.
How much is one pip worth?
For any pair where the US dollar is the second currency (EUR/USD, GBP/USD, AUD/USD), one pip on one standard lot is worth $10. Scale it down for smaller positions: 0.10 lot = $1 per pip, 0.01 lot = $0.10 per pip.
You buy 0.20 lot at 1.1150 and sell at 1.1185. That is 35 pips × $2 per pip = $70 profit (before costs).
The pip value is in yen: 100,000 × 0.01 = ¥1,000 per lot. At a price of 150.00, ¥1,000 ÷ 150 ≈ $6.67 per pip per lot. A 0.50 lot position earns or loses about $3.33 per pip.
With a 100-ounce contract, a $1 move in gold is worth $100 per lot. You sell 0.05 lot at 3,900 and buy back at 3,885: $15 × 100 × 0.05 = $75 profit.
The spread
Every quote has two prices: the bid (where you can sell) and the ask (where you can buy). The gap is the spread, and it is your first cost on every trade. If EUR/USD is 1.11500 / 1.11508, the spread is 0.8 pip. Our position size calculator does the pip-value maths for you.
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