Hey everybody, I’m Rob Booker, inventor of the paper clip. That’s not actually true. Welcome back to our FX Trading 101 lessons. I’m happy to be here, thanks to our sponsor Forest Park FX. Pip value, it’s the question on everyone’s mind. How much is a pip worth? We talked about it earlier, we talked about the spreads, we talked about the commissions, we talked about the quotes, we talked about buying and selling a little bit. Let’s say, Nate, that you made 10 pips. Is that a lot of money? Is it not a lot of money? How much money is it if you make 10 pips? Well, it all depends.
There are in the world of currency trading, three different primary trade sizes and this applies to 99% of all of you that are gonna be doing trading. The first trade size is the smallest and it’s called a micro lot. This is what we use when we first start trading and it’s the smallest trade size possible. Now inside of your trading account, you might see, when you open up an order window, the word volume. This refers to your trade size, okay? So it might say volume but it refers to trade size. And there is a bunch of number with decimals and I wanna break those down, as I mentioned starting with, if I can anyway, starting with the micro lot. So this is referred to as a micro lot. I don’t know why they use the word lot but it’s a lot size or it’s just trade size, lot size, micro lot, whatever.
A micro lot represents 1,000 units of currency. So 1,000 units of currency. And it is generally shown in your trading account as .01 as the volume or as the trade size. So I’m gonna use the word volume here because most of you are gonna use Meditrader and that’s the word you gonna see. So that would be the volume. This is worth 10 cents or 10 pennies or what’s the fraction in Pounds? Fraction of a Pound is? – [Nate] Pence. – Pence? 10 pence or whatever currency that you’re dealing with in your country. The trade size is a micro lot, it’s the smallest one you can probably trade, it’s 1,000 units of currency, it’s a trade size of .01 or a volume size of .01 lots and for every pip moved it’s 10 cents. So going back to our original question. If you made 10 pips trading one micro lot, Nate, if you made 10 pips, what would that be worth? And if you’re playing along at home, let me know. If you made 10 pips what would that be worth? And you can shout it at your computer screen.
– 10 cents? No. A dollar? – A dollar, so 10 pips, great job Nate, 10 pips equals one dollar or if you’re trading in the UK one pound or if you’re trading in a euro denominated account one euro or if you’re trading in a yen account it would be 100 yen, if you’re trading in Australia with Australian dollars, it would be one Australian dollar because you made 10 pips, each one was worth 10 cents. Now these numbers are approximate. For most currencies this is exactly what it will look like. If you’re trading the Japanese yen, it might be seven cents per pip or eight cents per pip. If you’re trading the British pound, Australian dollar, it might be 13 cents a pip or some other number close to this number. That makes sense, Nate? So it’s close to this number, that’s a general range. The next trade size that you can trade is a mini and it’s 10 times larger than a micro. What’s 10 times larger than a micro, Nate? – [Nate] .1? – So .1 is the volume, excellent. That’s the volume and you would be trading in this case 10,000 units of currency instead of 1,000. So if every micro lot was worth 10 cents, what’s every mini lot worth approximately? – [Nate] One dollar.
– One dollar, one Australian dollar, one pound, one euro, 100 yen and so forth on down the line, depending on where your account was initiated. One dollar per pip. Now this is a general number. If you’re trading the US dollar, Japanese yen in the United States it might be worth 79 cents, might be worth 80 cents. You’re trading the British pound, Australian dollar it might be worth dollar or something along those lines. It’s gonna change but it’s gonna be in this range.
So if you make 10 pips on a mini lot, Nate? How much money have you made? – [Nate] 100 dollars. – 10 pips on a mini lot would be? – [Nate] I was gonna say that was 100 but I guess I’m gonna go with 10. – It would be 10 dollars because one pip is worth a dollar and 10 of them would be worth 10 dollars. Now what if you made 10 pips but you traded two mini lots. – [Nate] 20 dollars. – 20 dollars. How many units of currency would a mini lot be worth? – [Nate] 20,000? – 20,000 units of currency. What would the volume number look like? – [Nate] Ah, .2. – .2 and what would the dollar value per pip be? – [Nate] Two. – Two dollars. If you traded, what if you traded five mini lots, play along with me at home. What’s your value per pip on five mini lots? – [Nate] Five dollars. – Five dollars, there you go. The mini lot is one of the most commonly traded units.
When I started trading in the year 2000, you couldn’t trade a micro or a mini. You had to trade what is called a standard. Standard lot was the original largest trade size. Well it was the original trade size, everything was quoted in standard lots. If a standard lot is 10 times larger than a mini lot, 10 times larger than a mini lot, what’s the standard lot in units of currency? – [Nate] 100,000. – 100,000 units of currency. Okay, so you’re controlling the euro, dollar for example, if you trade one standard lot, you’re controlling 100,000 dollars worth of euro, US dollar. Sounds crazy, sounds big, it’s not really that big. Standard lot is 100,000 units of currency and how would you quote that with volume? – [Nate] One. – It would be a one, a volume or trade size, one lot. That was what they used to call it, they didn’t have to call it a standard lot cause it was just the only one available. And what’s the value per pip? – [Nate] Ahm, 10. – 10 dollars per pip. So if you made 10 pips with a standard lot, how much money have you made? – [Nate] 100. – You’ve made 100 dollars. Now we’re gonna talk later on about how much money you need in your trading account to trade these sizes.
But now you have a good idea of what each of these is worth. So we’re gonna do a little quiz here and you can play along at home. Using the stuff that you learned inside of this lesson, if, Nate, if you made seven pips with, no. If you made 10 pips with 7 mini lots, how much money have you made? – [Nate] 70 dollars? – You’ve made seven dollars. – [Nate] Seven dollars. I gotta write slower here or else the board really dislikes me. If you have made 10 pips on five micro lots, how much money have you made? – [Nate] 50 cents? – 50 cents or 50 pence or whatever. This is great. If you have made 10 pips with 20 standard lots, how much money have you made? – [Nate] Thousand? – So you’ve made 20 times 10.
– [Nate] Oh. – Which would be … – [Nate] 200. – 20 standard lots, 10 pips, 200 dollars. Okay, so now you know about trade sizes and pip values. Remember these numbers are approximate. If you’re trading the euro, US dollar these are exactly correct. And if you’re trading the pound, Japanese yen these numbers slightly change but stay in a range that is very similar. The best way to experiment with this is to open up your demonstration trading account and to play around with taking orders and taking trades and whatever else. Now we’re gonna talk about that a little bit later on but the best way to find out what each thing is worth is to open up your trading platform and start playing around with this and start taking few trades.
To wrap things up, I wanna thank our sponsor Forest Park FX. Interested in FX trading, contact Forest Park FX to open an account and receive cash back rebates on every trade you place. You can go to forestparkfx.com. Forex trading carries a substantial risk of loss and it not suitable for everyone. Terms and conditions will apply. We’ll see you in the next lesson..
As found on Youtube
One of the first parts to a good forex education is to learn what pips are and how they are valued. A PIP in FX
BREAKING DOWN 'Pip' A pip is a basic concept of foreign exchange (forex) trading. When foreign exchange quotes are made or when traders transact in foreign currency, currency pairs are used.
The XM pip value calculator helps clients determine the value per pip in their base currency so that they can monitor their risk per trade more accurately.
Trade CFDs on forex and use the FxPro pip calculator to calculate profits. Trade with a UK-regulated broker.