ARMFPip value and lot size
The pip value is the multiplier that converts a quote movement into money. Without it the size formula does not work, and the $10 figure taken out of habit is only right for part of the instruments. We take apart how the pip value is derived for three types of pairs and what a standard, mini and micro lot are.
What a lot is in trading: lot size, notional and the size step
A lot is a unit of size tied to the amount of base currency in the contract. On forex the standard contract size is one hundred thousand units of the pair's base currency.
| Name | Size in lots | Units of base currency | Pip value for a pair quoted in USD |
|---|---|---|---|
| Standard lot | 1.00 | 100,000 | $10 |
| Mini lot | 0.10 | 10,000 | $1 |
| Micro lot | 0.01 | 1,000 | $0.10 |
The smallest step at most venues is one hundredth of a lot, that is one micro lot. This is the figure that sets the lower bound for the deposit under your risk rule: if the minimum step loses more than you are prepared to risk, the trade is impossible.
What counts as a pip
A pip is the standard minimum change of a quote: the fourth decimal place for most pairs and the second for pairs with the Japanese yen. Modern quotes usually have five digits, and the last one is a tenth of a pip, not a pip.
- EUR/USD: 1.08500 → 1.08510
- A change of 1 pip. The fifth digit is a fraction of a pip: a move of 1.08500 → 1.08505 is half a pip.
- USD/JPY: 150.250 → 150.260
- Also 1 pip, but the pip here equals 0.01, because the quote is carried to two decimal places.
- Why this matters
- A stop of «20 pips» entered into the terminal as 20 points of a five-digit quote turns out ten times shorter than intended — and the size from the formula comes out ten times larger.
Three pip value formulas
The pip value depends on which currency stands in the quote of the pair. For a dollar account there are three cases.
Pip value = contract × quote step: one hundred thousand times 0.0001 gives $10 per standard lot. The figure is constant and does not depend on the exchange rate.
exactly $10The pip is counted in the quote currency, so its value is divided by the current rate: 10 units of the quote currency ÷ the rate. With USD/JPY around 150 that is 1,000 yen ÷ 150 ≈ $6.7 per standard lot.
depends on the rateThe pip value is counted in the quote currency and then converted into dollars at its rate against the dollar. For EUR/GBP that is 10 GBP multiplied by the current GBP/USD rate.
two stepsThe numeric examples are given for the order of magnitude at the rates on the check date shown at the bottom of the page. Rates change, so in practice the pip value is taken from the instrument specification in the terminal — it is recalculated automatically.
Why this changes the size calculation
Take one trade and substitute a different pip value: an account of $5,000, risk of 1 % ($50), a stop of 40 pips.
| Instrument | Pip value on a full lot | Cost of the stop on a full lot at a 40-pip stop | Size |
|---|---|---|---|
| A pair quoted in USD | $10.00 | $400 | 0.12 lot |
| USD/JPY at a rate around 150 | $6.70 | $268 | 0.18 lot |
| USD/CHF at a rate around 0.88 | $11.40 | $456 | 0.10 lot |
| EUR/GBP with GBP/USD around 1.27 | $12.70 | $508 | 0.09 lot |
The difference between the first and the last row is a third of the size at the same money risk. Count every pair «at ten dollars a pip» and on some instruments you will systematically take too little size, while on others you will exceed your own risk limit — and the second is more dangerous.
How to check yourself. After opening the position, look up the value of one pip for your size in the terminal and multiply it by the stop distance. The result must match the money risk you planned. If it does not, the error is in the pip value or in the units of the stop.
How to check the pip value by hand
The value from the specification is worth double-checking — especially on an account in a currency other than the dollar and on a non-standard contract size. The check takes a minute and is done once for each instrument.
0.01 lot on the pair in question. This is a cheap check: with a spread of 1.5 pips it costs about 15 cents.
0.01 lotThe terminal shows the profit or loss in the account currency. Write the value down along with the current price.
from the terminalThe difference in the result divided by 10 is the pip value for this size.
a minute or twoYou get the pip value on a standard lot — the number that goes into the size formula.
×100If the value you get differs from the specification by more than a few percent, the reason is usually one of three: the account is in another currency, the contract has a non-standard size, or the quote has five digits and you counted points instead of pips.
Frequently asked questions
How much is a pip worth on forex?
A full lot of a pair with the dollar second gives $10 per pip; a mini lot is ten times less, a micro lot a hundred times. For pairs where the dollar takes the first position, and for crosses, the value depends on the current rate and is taken from the instrument specification.
How does a pip differ from a point?
A pip is the standard unit (the fourth digit of the quote, the second for yen pairs). A point in terminals with five-digit quotes is the minimum price step, that is one tenth of a pip. The tenfold discrepancy is a common source of errors when entering a stop.
What is contract size and where do you look it up?
It is the amount of base currency in one lot — on forex usually 100,000 units. The value is shown in the instrument specification in the terminal, together with the minimum and maximum size, the step and the margin requirements.
Does the pip value change during a trade?
Where the dollar stands second, no. In the other cases the figure floats with the rate, but within a single trade the change is usually negligible. What matters more is this: the size has to be calculated from the current value, not from one remembered from last month.
What does a pip cost on 0.01 lot?
Where the dollar stands second, 10 cents. It follows from the proportion: a standard lot gives $10 per pip, a micro lot is a hundred times smaller. For pairs with the dollar as base and for crosses the value is recalculated at the rate.
Why are there five decimal places in the terminal?
These are fractional pips: the fifth digit is a tenth of a pip. Brokers call it a point. The mistake with units is common: a stop of «20» entered in points turns out ten times shorter than intended, and the size from the formula ten times larger.
How do you find out the contract size at your broker?
In the instrument specification in the terminal: it lists the contract size, the minimum and maximum size, the step and the margin requirements. At some brokers and on cent accounts the contract size differs from the standard one.
Is the pip value different on an account in euros or roubles?
Yes. All calculations are brought to the account currency, so on a euro account the pip value on EUR/USD will not be $10 but the equivalent in euros at the current rate. The terminal shows the current value in the specification.
Why is the pip value fixed on one pair and floating on another?
When the quote currency matches the account currency — as the dollar does in EUR/USD for a dollar account — no conversion is needed and the value stays constant. In every other case the amount in the quote currency is converted into the account currency at the current rate, so the pip value moves with it.
What is the pip value in the quote currency?
An intermediate value in the calculation: for a standard lot it always equals 10 units of the quote currency (or 1,000 for yen pairs). That amount is then converted into the account currency at the rate — hence the differences between pairs.
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