About Price: What is PIP and LOT
What is PIP and LOT
"Pip” is an acronym for percentage in point or price interest point. It is the smallest movement an exchange rate can make. Most currency pairs like the GBP/USD are quoted to the fourth decimal place (1.5895). For example, let's assume that the buy price is currently quoted at 1.5863 USD for 1 GBP. If the price then changes to 1.5864 that would be an increase of one pip. If the price changes from 1.5864 to 1.5863 that would be a decrease of one pip. Not all pairs are quoted to the fourth decimal place like the dollar and yen, which are typically quoted to the second decimal place (USD/JPY – 90.93 can change to USD/JPY – 90.94, and that would be an increase of one pip).
“Pipette” is a fractional value of a pip. Its value is 1/10 of a regular pip. That means that 10 pipettes = 1 pip. It is used on trading platforms with 5 decimal places. If the buy price is quoted at 1.58630 and changes to 1.58644 that would be an increase of 14 pipettes or 1,4 pips. The more precise quotes allow trading platforms to provide the best available pricing, and for traders, the more accurate pricing means lower transaction costs.
"Lot" is the available trade size that you can place on your account while trading. It is the amount of the base currency pairs (EUR/USD, GBP/USD, etc.) that you are buying or selling. We have several types of lots:
the standard, the mini, the micro, and the nano lot.
One standard lot is equal to 100,000 units of the base currency. (EUR/USD = € 100,000)
One mini lot is equal to 10,000 units of the base currency. (EUR/USD = € 10,000)
One micro lot is equal to 1,000 units of the base currency. (EUR/USD = € 1,000)
One nano lot is equal to 100 units of the base currency. (EUR/USD = € 100)
For example, a micro lot is one thousand units of currency meaning the smallest trade that you can place in one thousand units. You can place larger trades, but the trade size must be an increment of one thousand like two thousand (2 lots), 3 thousand (3 lots), or 10 thousand (10 lots).
Forex pairs are 100,000 units per 1 lot.
Units per 1 lot vary on non-forex pairs, so, please, check with your broker.
Example
Pips can be calculated according to the following formula:
Pip Value = (Pip Size / Exchange Rate) * Position Rate
If we want to calculate the pip value for a trading account in EUR, for a position size of 1 lot (100,000 currency units) for the EUR/USD, and the current trading is at $ 1.0166 for € 1, our calculation will be:
Pip Value = (0.0001 / 1.0166) * 100,000 = € 9.84
The pip value for 1 lot of EUR/USD, with a market rate of 1.0166 on a EUR trading account is € 9.84.