Before you can size a trade or work out a stop-loss, you need to speak the market's units. Prices move in pips, points or ticks, and you trade in lots or contracts. Get these wrong and you can take ten times the risk you meant to.
Pips
A pip ("percentage in point") is the standard unit of movement in forex. For most pairs it is the fourth decimal place, 0.0001. For pairs quoted in Japanese yen it is the second decimal place, 0.01. Most brokers quote one extra digit, a pipette, worth a tenth of a pip.
Lots
Forex is traded in lots, a set number of units of the base currency (the first currency in the pair). The lot size decides how much each pip is worth to you.
| Lot | Units | Pip value on EUR/USD | A 20-pip move is worth |
|---|---|---|---|
| Standard | 100,000 | $10.00 | $200 |
| Mini | 10,000 | $1.00 | $20 |
| Micro | 1,000 | $0.10 | $2 |
Working out pip value for any pair
Pip value = pip size × number of units, and the answer comes out in the quote currency (the second one in the pair). If your account is in a different currency, convert it at the current rate.
Worked example
USD/JPY at 150.00, 1 standard lot.
Pip value = 0.01 × 100,000 = ¥1,000 per pip.
In dollars: ¥1,000 ÷ 150.00 = about $6.67 per pip. So a 30-pip stop risks about $200.
Points and ticks: indices, commodities and futures
Outside forex, prices move in points (a whole number move, like the S&P 500 going from 5,000 to 5,001) and ticks (the smallest allowed price step). For futures, each contract has a fixed value per tick set by the exchange.
| Contract | Tick size | Value per tick | Value per point / $1 |
|---|---|---|---|
| E-mini S&P 500 (ES) | 0.25 | $12.50 | $50 per point |
| Micro E-mini S&P 500 (MES) | 0.25 | $1.25 | $5 per point |
| E-mini Nasdaq-100 (NQ) | 0.25 | $5.00 | $20 per point |
| Micro E-mini Nasdaq-100 (MNQ) | 0.25 | $0.50 | $2 per point |
| Crude oil (CL) | 0.01 | $10.00 | $1,000 per $1 |
| Gold (GC) | 0.10 | $10.00 | $100 per $1 |
CFD versions of indices and gold are set by each broker. Many quote gold so that one lot is 100 ounces, which makes a $1 move worth $100, but always check the contract specification before you trade.
Key takeaways
- A pip is 0.0001 for most currency pairs and 0.01 for yen pairs; a pipette is a tenth of a pip.
- A standard lot is 100,000 units, a mini 10,000 and a micro 1,000; on EUR/USD that's $10, $1 and $0.10 per pip.
- Pip value = pip size × units, in the quote currency, converted to your account currency.
- Futures move in ticks with a fixed dollar value per contract; check the spec for every instrument.