Pips, lots and units

Traders say EUR/USD rose 40 pips the way everyone else says it got warmer outside. The units are half the language of the market, and every lesson after this one speaks them without stopping to translate. Ten minutes here pays for itself for years.

What exactly is a pip?

The standardised step a price is measured in. For most pairs it is the fourth decimal place: EUR/USD moving from 1.1000 to 1.1040 moved 40 pips. Pairs quoted in yen carry the pip at the second decimal instead - USD/JPY from 125.00 to 125.40 is the same 40 pips - because a yen is worth roughly a hundredth of the other major currencies, so two decimals do the work four do elsewhere. Platforms often quote one digit finer; that last digit is a fractional pip, a tenth.

What is a lot, and why 100,000?

A lot is 100,000 units of the base currency - a wholesale market's standard parcel, inherited from bank dealing. Retail platforms subdivide it: a mini lot is 0.10 (10,000 units), a micro 0.01 (1,000 units). The two units multiply into the number that matters: what one pip is worth for your position. On a full lot of most pairs that is 10 units of the quote currency per pip; scale it by your lot size and you can price any move before you take it. The worked example runs the chain.

What this means for you

Price every move in your account currency before you take the position - pips times pip value for your size is the whole formula, and the tools below do it for any pair. Check the pip convention whenever yen is involved, because misreading 0.01 as 0.0001 misprices a move a hundredfold. And notice what these units quietly gave you: the ability to decide what a move is worth at different sizes, which is the raw material of position sizing - module 4's opening subject.