Pips, Points & Trading Terminology — Complete Guide
Master essential trading terminology: pips, pipettes, points, ticks, lot sizes, leverage, margin, and all the key terms every trader must know.
Pips, Points & Essential Trading Terminology
Understanding trading terminology is the foundation of market literacy. Without knowing what a pip is, how lots work, or what leverage means, you cannot properly analyze trades or manage risk.
Every trading discussion, analysis, and strategy uses standardized terminology. Misunderstanding a single term can lead to incorrect position sizing, miscalculated risk, or missed opportunities.
What is a Pip?
A Pip (Percentage in Point / Price Interest Point) is the smallest standard unit of price movement in forex trading.
Pip Measurement:
- Most currency pairs: 4th decimal place (0.0001)
- JPY pairs: 2nd decimal place (0.01)
Examples:
| Pair | Movement | Pip Change |
|---|---|---|
| EUR/USD | 1.0900 → 1.0910 | +10 pips |
| EUR/USD | 1.0900 → 1.0885 | -15 pips |
| USD/JPY | 150.00 → 150.50 | +50 pips |
| USD/JPY | 150.00 → 149.70 | -30 pips |
| GBP/USD | 1.2700 → 1.2745 | +45 pips |
Pipettes (Fractional Pips)
A Pipette is 1/10th of a pip — the 5th decimal place for most pairs, or 3rd for JPY pairs.
EUR/USD: 1.09003 → the "3" is a pipette
USD/JPY: 150.003 → the "3" is a pipette
10 pipettes = 1 pip
Many modern brokers show pipette-level pricing for more precise entries and exits.
Points vs. Pips
| Term | Used In | Definition |
|---|---|---|
| Pip | Forex | 4th decimal (0.0001) or 2nd for JPY |
| Point | Indices, Stocks | Minimum price increment for that instrument |
| Tick | Futures | Minimum price movement for futures contracts |
| Cent | Commodities (Gold) | $0.01 movement |
Examples:
- S&P 500: 1 point = $1 per contract
- Gold: 1 point = $1 (but measured in cents: $0.01 = 1 cent)
- Bitcoin: 1 point = $1
- ES Futures: 1 tick = 0.25 points = $12.50 per contract
Pip Value Calculation
The monetary value of one pip depends on your lot size and the currency pair:
Standard Pip Values (USD pairs):
| Lot Size | Name | Units | Pip Value |
|---|---|---|---|
| 1.00 | Standard Lot | 100,000 | $10.00 |
| 0.10 | Mini Lot | 10,000 | $1.00 |
| 0.01 | Micro Lot | 1,000 | $0.10 |
| 0.001 | Nano Lot | 100 | $0.01 |
Pip Value Formula:
Pip Value = (Pip Size ÷ Exchange Rate) × Lot Size in Units
Example (EUR/USD at 1.0900):
Pip Value = (0.0001 ÷ 1.0900) × 100,000 = $9.17 ≈ $10
Example (USD/JPY at 150.00):
Pip Value = (0.01 ÷ 150.00) × 100,000 = $6.67
Pip value varies by pair and exchange rate. For pairs where USD is the quote currency (EUR/USD, GBP/USD), pip value is always $10 per standard lot. For other pairs, it fluctuates.
Lot Sizes Explained
What is a Lot?
A Lot is the standardized unit for measuring trade size. It determines how much of an asset you're buying or selling.
Forex Lot Sizes:
| Lot Type | Size | 1 Pip Worth | Suitable For |
|---|---|---|---|
| Standard (1.0) | 100,000 units | $10 | $10,000+ accounts |
| Mini (0.10) | 10,000 units | $1 | $1,000-10,000 accounts |
| Micro (0.01) | 1,000 units | $0.10 | $100-1,000 accounts |
| Nano (0.001) | 100 units | $0.01 | Demo/practice |
Position Sizing Example:
Account: $5,000
Risk: 1% = $50
Stop Loss: 25 pips
Pip Value needed: $50 ÷ 25 = $2 per pip
Lot Size: $2 ÷ $10 = 0.20 lots (2 mini lots)
Essential Trading Terms
Order & Execution Terms:
| Term | Definition |
|---|---|
| Market Order | Buy/sell at current price immediately |
| Limit Order | Buy/sell at specified price or better |
| Stop Order | Buy/sell when price reaches trigger level |
| Stop Loss (SL) | Order to close position at maximum loss |
| Take Profit (TP) | Order to close position at target profit |
| Slippage | Difference between expected and actual fill price |
| Fill | Confirmation that your order has been executed |
Position Terms:
| Term | Definition |
|---|---|
| Long | Buying an asset (profit when price rises) |
| Short | Selling an asset (profit when price falls) |
| Entry | Price where you open a position |
| Exit | Price where you close a position |
| Open Position | Active trade that hasn't been closed |
| Flat | No open positions |
Risk & Money Terms:
| Term | Definition |
|---|---|
| Leverage | Borrowed capital to control larger positions |
| Margin | Deposit required to open leveraged position |
| Margin Call | Warning that margin is running low |
| Stop Out | Broker forcibly closes positions |
| Drawdown | Peak-to-trough decline in account equity |
| Risk-Reward (R:R) | Ratio of potential loss vs. potential gain |
| Win Rate | Percentage of trades that are profitable |
| Equity | Account balance + floating P&L |
Market Analysis Terms:
| Term | Definition |
|---|---|
| Support | Price level where buying pressure is strong |
| Resistance | Price level where selling pressure is strong |
| Trend | General direction of price movement |
| Bullish | Expecting price to rise |
| Bearish | Expecting price to fall |
| Consolidation | Price moving sideways in a range |
| Breakout | Price moving beyond support/resistance |
| Pullback | Temporary reversal against the trend |
| Volatility | Degree of price fluctuation |
| Liquidity | Ease of buying/selling without impacting price |
Leverage & Margin Explained (Brief)
Leverage:
Allows you to control a large position with small capital.
Leverage 1:100 means:
- Your capital: $1,000
- You control: $100,000 (100× your money)
- 1 standard lot on EUR/USD possible
BUT: 1% adverse move = $1,000 loss = YOUR ENTIRE ACCOUNT
Margin:
The collateral (deposit) required to open a leveraged trade.
Margin Required = Position Size ÷ Leverage
Example:
- Position: $100,000 (1 standard lot)
- Leverage: 1:100
- Margin Required: $100,000 ÷ 100 = $1,000
Key Formulas Every Trader Must Know
| Formula | Calculation |
|---|---|
| Pip Value | (Pip Size ÷ Rate) × Lot Units |
| Position Size | (Risk $) ÷ (SL pips × Pip Value) |
| Risk % | (SL pips × Pip Value × Lots) ÷ Account × 100 |
| Risk-Reward | TP distance ÷ SL distance |
| Margin Required | Position Size ÷ Leverage |
| Profit/Loss | Pips gained/lost × Pip Value × Lots |
| Break Even | Entry ± (Spread + Commission in pips) |
Related Topics
- Bid, Ask & Spread — Understanding price quotes
- Position Sizing — Calculate proper trade sizes
- Margin & Leverage — Risk of borrowed capital
- Forex Basics — Complete forex guide
- Order Types — All order types explained