Lesson 2 Currency Pairs Pips and Lots

Convert price differences into pips, calculate pip value, and distinguish position units from account currency.

Read the quotation before calculating

Pairs involving USD and a heavily traded currency are commonly called majors. A cross pair excludes USD, such as EUR/GBP. The label “exotic” is used for some pairs involving less widely traded currencies; naming conventions differ. A familiar label does not establish the spread or risk on a particular platform. Many platforms show fractional pips. In a five decimal EUR/USD quote, 0.00001 is one tenth of a pip, often called a pipette. USD/JPY may show three decimals while its conventional pip remains 0.01. “Points” is platform dependent; do not assume 10 points always equals one pip for every product. Pip movement = price difference ÷ pip size. EUR/USD from 1.08765 to 1.08895 rises by 0.00130 ÷ 0.0001 = 13 pips. USD/JPY from 150.20 to 149.85 falls by 0.35 ÷ 0.01 = 35 pips. OANDA pip conventions (https://www.oanda.com/us-en/skills-and-insights/education/introduction-trading/basics/what-is-a-pip/).

Calculate pip value in the quote currency

Pip value in quote currency = base units × pip size. For 10,000 EUR in EUR/USD: 10,000 × 0.0001 = 1 USD per pip. For 1,000 USD in USD/JPY: 1,000 × 0.01 = 10 JPY per pip. To express that JPY pip value in a USD account at an assumed USD/JPY rate of 150.00, divide by 150: 10 JPY ÷ 150 JPY per USD ≈ 0.0667 USD per pip. The USD pip value changes as the conversion rate changes. For 10,000 EUR in EUR/GBP, a pip is 1 GBP. If GBP/USD is assumed to be 1.2500, that pip is about 1.25 USD. Check units: GBP multiplied by USD per GBP gives USD.

Calculate a trading result

For an ordinary linear forex position:

Long result in quote currency = units × (exit fill − entry fill).
Short result in quote currency = units × (entry fill − exit fill).

A simulated short of 10,000 GBP in GBP/USD at 1.2600, closed at 1.2565, gains 35 pips × 1 USD = 35 USD before separate charges. A close at 1.2635 loses 35 USD. When actual entry and exit fills are used, their bid and ask difference already reflects the spread. Do not subtract that same spread again. Separate commissions, financing, and conversion charges still need to be accounted for.

Common mistake

“One lot is 10 USD per pip” applies to a 100,000 unit position in a pair with USD as the quote currency, with USD account reporting. It is not a universal rule. Before calculating, write down the base units, quote currency, pip size, and account currency.

Practice

Calculate: EUR/USD from 1.0920 to 1.0955; USD/JPY from 148.60 to 148.35; the EUR/USD pip value of 0.03 standard lots; and the result of selling 3,000 EUR at 1.0950 and closing at 1.0970. State the currency of every cash answer.

Check your understanding

After the four lessons in this module, complete Module 1 knowledge check from the course overview. It contains the three questions from each lesson with feedback after submission. Keep written calculations in your workbook.

Glossary

Ask: Price at which the customer can buy the pair
Bid: Price at which the customer can sell the pair
Financing: Charge or credit for holding a position under the contract’s terms
Long: Exposure that benefits from a higher pair price before costs
Lot: A position volume convention; verify base units for the instrument
Pip: A conventional exchange rate movement unit
Pipette: A fractional pip, commonly one tenth of a pip
Quote currency: Second currency, in which one base unit is priced
Short: Exposure that benefits from a lower pair price before costs
Spread: Ask minus bid