Pips, lots and leverage without the mystique

These three words carry most of the jargon in retail forex, and none of them is complicated. What makes them feel complicated is that they are usually explained separately, when their only real use is together, in one calculation.

The pip: how far price moved

A pip is the standard increment a currency pair moves in. For most pairs it is the fourth decimal place — 0.0001. EUR/USD going 1.0847 → 1.0857 is a ten-pip move.

Yen-quoted pairs are quoted to two decimals, so a pip is 0.01. USD/JPY going 151.24 → 151.34 is also ten pips. Treating a yen pip as 0.0001 understates your risk by a factor of 100, which is the sort of error that only announces itself after the trade.

The lot: how much of it you own

A pip on its own is not money. The lot decides what each pip is worth.

• Standard lot — 100,000 units of the base currency
• Mini lot — 10,000 units (0.1 lots)
• Micro lot — 1,000 units (0.01 lots)

Multiply the pip size by the units and you get the value of one pip, in the quote currency:

Pair	Pip size	Standard lot	One pip is worth
EUR/USD	0.0001	100,000	$10
GBP/USD	0.0001	100,000	$10
USD/JPY	0.01	100,000	¥1,000

Note the yen row is in yen, not dollars. If your account is in dollars you need today's USD/JPY rate to convert it — which is why our pip value calculator asks for a rate on those pairs instead of guessing one. A stale rate produces a confidently wrong position size, and that is the one output this site will not ship.

Gold catches people out for a different reason: a standard XAU/USD lot is 100 troy ounces, not 100,000 units. Using the currency convention there overstates pip value a thousandfold.

Leverage: how much size your deposit supports

Leverage is the ratio between the position you control and the money you post to control it. At 30:1, £1,000 of margin supports a £30,000 position.

It is capped for retail clients, by asset class, under FCA rules:

Instrument	Minimum margin	Effective leverage
Major currency pairs	3.33%	30:1
Minor pairs, major indices, gold	5%	20:1
Other commodities, minor indices	10%	10:1
Individual shares	20%	5:1

Leverage is not a strategy and it is not free money. It multiplies the position, which multiplies both outcomes symmetrically — but your account is not symmetric, because it can reach zero and a price cannot go below its floor. That asymmetry is the whole reason the caps exist.

Putting all three together

The only calculation that matters combines them. A $5,000 account, risking 1%, trading EUR/USD with a 20-pip stop:

1. Money at risk: 1% of $5,000 = $50.
2. Loss per lot if stopped: 20 pips × $10 = $200 per standard lot.
3. Size: $50 ÷ $200 = 0.25 lots — 25,000 units.
4. Check: at 0.25 lots each pip is worth $2.50, and 20 pips against you is $50. Correct.

That position needs roughly $833 in margin at 30:1 — well within the account — while risking $50. Margin says what you can open; the stop and the pip value say what you can lose. Traders who size against margin instead of against risk are the ones who describe the market as unforgiving.

The full method, including when to size down, is in position sizing. Check the numbers yourself in the position size calculator.