Pips, Lots & Leverage — Without The Confusion
The maths behind every trade: what a pip is worth, how lot size changes risk, and why leverage is a tool — not free money.
What Is A Pip?
A pip is the smallest standard move in a currency pair — usually the 4th decimal (0.0001). For JPY pairs it is the 2nd decimal (0.01).
If EUR/USD moves from 1.0850 to 1.0851, it moved one pip. Many brokers also quote pipettes — a tenth of a pip (the 5th decimal).
Lots: Standard, Mini & Micro
Your position size is measured in lots:
- Standard lot = 100,000 units
- Mini lot = 10,000 units
- Micro lot = 1,000 units
On a standard lot, one pip is roughly $10. On a mini lot, ~$1. On a micro lot, ~$0.10. That is how size translates directly into risk.
Leverage & Margin
Leverage lets you control a large position with a small deposit. Margin is the collateral your broker holds.
At 1:100 leverage, $100 of margin controls a $10,000 position. Great when you are right — brutal when you are wrong, because losses are amplified the same way.
Calculating Pip Value & Risk
A simple way to size any trade:
- Decide your risk per trade (e.g. 1% of the account).
- Measure your stop distance in pips.
- Position size = (account risk) ÷ (stop in pips × pip value per lot).
This flips the usual thinking: instead of "how much can I make", you ask "how much am I willing to lose", then size accordingly.
✅ Key Takeaways
- A pip is the standard unit of price movement.
- Lot size directly sets the value of each pip.
- Leverage amplifies both wins and losses.
- Always size from your stop and risk %, not from greed.
⚠️ Common Mistakes
- Using high leverage with no plan.
- Ignoring pip value on different pairs.
- Sizing by gut feel instead of a formula.
🧠 Quick Quiz
Lock in the lesson — answer, then check your score.
Keep The Momentum.
Finish the track, take the quizzes, and come back to these notes before your next session.