Transaction sizes: lot amounts and the value of pips

With most brokers, the size of a standard lot is 100,000 units of the base currency (the currency on the left). Some brokers also offer standard lots of 10,000 units and others offer cent-denominated accounts, the size of a transaction can therefore differ according to these parameters.

If your broker uses standard lots (almost all do):

• 1 standard lot = 100,000 units
• 1 mini lot (0.10 lot) = 10,000 units
• 1 micro lot (0.01 lot) = 1,000 units
• 1 nano lot (0.001) = 100 units

If you buy (go long) 1 lot on the EUR/USD which is quoting at 1.3500, you are buying 100,000 euros, which have a value of 135,000 dollars (100,000 x 1.3500).

If you buy a mini lot (0.10 standard lots) of EUR/USD which is quoting at 1.3500, you are buying 10,000 euros which have a value of 13,500 dollars (10,000 x 1.3500).

The goal, of course, is to sell this lot at a higher price to make a profit. You can also sell the euro (a short position) with the intention of buying it back later cheaper. You can therefore bet on a rise (long position) or fall (short position) of the euro against the dollar.

Depending on the size of the transaction, each variation of a pip represents a certain amount. For example, for a 1 lot position, each pip is worth $10: if the price goes from 1.3500 to 1.3501 a long position wins $10 and a short position loses $10. The value of a pip is different if your account is denominated in euros.

How are pips calculated?

Simply divide the amount of the transaction in the base currency by 10,000 (or 100 for pairs with the yen).

A transaction (EUR/USD) of 100,000 euros/10,000 = $10. The value of each pip is therefore $10 or the equivalent in euros if your account is denominated in euros.

Another example, a EUR/GBP (Euro/Pound) trade of 100,000 euros/10,000 = 10£. 1 pip will be equal to 10 GBP, but you then have to convert these 10 GBP into the currency of your account.