PRACTICAL GUIDE
Explained concepts, worked cases and practice to test your understanding. Numerical examples are hypothetical; replace assumptions with your instrument specifications.
The essentials
Pips and points describe price moves; lots describe trade size. They are not interchangeable. A point typically matches symbol precision, while the pip convention depends on the market. The contract defines lot size.
Understand the mechanism, not just the definition
A pip measures a quote change; a lot measures contract quantity. A platform point usually corresponds to its last displayed decimal place, while a tick is the minimum permitted increment in the specification. Do not assume point and tick are identical. Many non-JPY pairs conventionally use 0.0001 per pip and JPY pairs 0.01. These conventions are not universal measures for gold, indices or all CFDs: use tick size and tick value for those products.
Example and verification
Hypothetical forex example: if a pip is 0.0001 and a point 0.00001, one pip equals ten points. If one lot represents 100,000 units, 0.01 lots represents 1,000. Check both specifications before using these numbers.
Worked case, step by step
Assume five-decimal EUR/USD, a EUR 100,000 contract per lot and a USD account. Moving from 1.10000 to 1.10450 is 450 points of 0.00001, equivalent to 45 pips of 0.0001. At 0.01 lot, exposure is EUR 1,000 and each pip is USD 0.10, so the favorable move produces USD 4.50 gross. At 0.10 lot, a pip is USD 1 and the result is USD 45. A sell position has the opposite sign for this move. These figures exclude costs.
Pip value = contract size × lots × pip size| Volume | EUR exposure | USD per pip | 45 pips: gross |
|---|---|---|---|
| 0.01 | 1,000 | 0.10 | 4.50 |
| 0.10 | 10,000 | 1.00 | 45.00 |
| 1.00 | 100,000 | 10.00 | 450.00 |
PIP WORKSHOP
Change the volume and observe the effect
Educational EUR/USD model: EUR 100,000 per lot, a 0.00001 point, a 0.0001 pip and USD results. Positive points represent a rise; negative points a fall. It excludes costs and does not calculate risk or margin.
What to verify when applying this
Record precision, contract size, minimum volume and volume step for each broker. For gold and indices, use the symbol's tick size and tick value rather than assuming a forex lot size.
Practice: verify it in your environment
Learn by observing the process and keeping its data. Complete this practice in demo or using documentation, without sending real orders or adding capital for the exercise. Record differences between the example and your account specifications.
- In MT5, open Market Watch and the symbol Specification. Record decimal precision, contract size, tick and volume step.
- Check monetary value separately. For hypothetical 100,000-unit USD/JPY with a 0.01 pip, one lot generates JPY 1,000 per pip; at JPY 150 per USD this is approximately USD 6.67.
- Repeat in demo at two volumes and compare gross results with history. Required margin is not pip value.
Test your understanding
Try the question before revealing the answer. Justify the conclusion and its assumptions rather than memorizing a number.
Under the same assumptions, what do 250 points represent at 0.02 lot?
Reveal the explained answer
250 points equal 25 pips. At 0.02 lot, a pip is USD 0.20, giving 25 × 0.20 = USD 5 gross. The sign depends on direction; then include spread, commissions and funding. This pip value cannot be transferred directly to a pair quoted in JPY or GBP.
Sources for further learning
Consult original documentation to check units, features and terms. Your account specifications take precedence over examples in this guide.
