Free Trading School · Level 3: Forex Essentials
Lots and what a pip is worth
Forex positions are measured in lots. The lot size decides how much money each pip is worth, so it is how you control your risk.
| Lot | Units of base currency | Pip value on EUR/USD |
|---|---|---|
| Standard | 100,000 | $10.00 |
| Mini | 10,000 | $1.00 |
| Micro | 1,000 | $0.10 |
When the US dollar is the quote currency (EUR/USD, GBP/USD, AUD/USD), one pip on a standard lot is always worth $10. For other pairs the value changes with the exchange rate. The formula is: pip value = (pip size ÷ exchange rate) × units, expressed in the base currency, then converted to your account currency.
You buy 0.3 lots (3 mini lots, 30,000 units) of EUR/USD with a 20-pip stop. Each pip is worth $3, so your risk is 20 × $3 = $60. If price reaches your 40-pip target you make 40 × $3 = $120.
Risk in money = stop distance in pips × pip value. Choose the lot size that makes this number fit your risk limit.
Quick answers
Forex positions are measured in lots. The lot size decides how much money each pip is worth, so it is how you control your risk.
Risk in money = stop distance in pips × pip value. Choose the lot size that makes this number fit your risk limit.
$10. A standard lot is 100,000 units; 0.0001 × 100,000 = $10.
Next lesson: Leverage and margin