A simple guide to the numbers behind every Forex trade
Before you place your first trade, you need to understand how profits and losses are calculated. That’s where pips, lots, and spreads come in.
Let’s break it all down in plain English — no math degree needed.
📍 What Is a Pip?
A pip stands for “point in percentage” — it’s the smallest price move a currency pair can make.
For most pairs, 1 pip = 0.0001
So if EUR/USD moves from 1.1000 to 1.1001, that’s a 1-pip move.
Exception:
For pairs with the Japanese yen (like USD/JPY), 1 pip = 0.01
If USD/JPY moves from 145.30 to 145.31, that’s 1 pip.
🔑 Why it matters: Pips are how you measure your gains and losses.
📦 What Is a Lot?
A lot is the amount of currency you're trading. In Forex, there are different lot sizes:
Standard Lot = 100,000 units (1.00 on the platform)
Mini Lot = 10,000 units (0.10)
Micro Lot = 1,000 units (0.01)
Example:
If you trade 1 micro lot of EUR/USD, you’re buying or selling €1,000 worth.
💡 Start small. Most beginners use micro or mini lots while learning.
💰 How Much Is 1 Pip Worth?
The value of 1 pip depends on:
The currency pair
The lot size
Your account’s base currency
But here’s a quick example for EUR/USD:
1 standard lot (1.00) = $10 per pip
1 mini lot (0.10) = $1 per pip
1 micro lot (0.01) = $0.10 per pip
So, if you earn 30 pips on a trade:
With a micro lot, you earn $3
With a mini lot, $30
With a standard lot, $300
🔄 What Is the Spread?
The spread is the difference between the buy price (ask) and sell price (bid).
It’s how brokers earn money on every trade.
Example:
If EUR/USD shows:
Buy at 1.1002
Sell at 1.1000
That’s a 2-pip spread.
It means when you open a trade, you start with a small loss (the spread), which must be covered before you can profit.
✔️ Lower spreads = better for traders
✔️ Major pairs usually have the lowest spreads
🧠 Why These Terms Matter
Pips tell you how much the market moved
Lots tell you how big your trade is
Spreads tell you your cost to enter and exit
Mastering these basics helps you:
Understand your risk
Set smart stop-loss and take-profit levels
Trade with confidence and clarity
✍️ Final Tip
Don’t worry about memorizing formulas right away. Instead:
Start with a demo account
Choose micro lots
Watch how pips and spreads affect your balance in real time
📌 The more you practice, the easier it gets.