Pips, Pip Value and Lots: Calculating a Trade's Profit or Loss

How much money is a 30-pip profit? The answer depends on three things: how far the price moves (pips), how much each pip is worth (pip value), and how much you trade (lots). This lesson explains all three so that you can calculate a trade's possible profit or loss before placing an order.

1. Pips: A Standard Unit of Price Movement

Share prices move in dollars and cents. Currency-pair movements are much smaller, so they are measured in pips.

Most platforms now display one additional decimal place. This smaller unit is called a point: 1 pip = 10 points. For example, 1.08503 is 3 points, or 0.3 pip, above 1.08500.

Tip: when counting pips, first locate the fourth decimal place, or the second for yen pairs. The extra digit after it represents points.

Gold, oil and stock indices also have minimum quote increments, but platforms do not use “1 point” consistently for these instruments. For profit and loss calculations, the most reliable method is Price change × Contract size × Lots, as shown in Section 5.

2. Lots: A Unit of Trading Quantity

A single pip has a very small value, so forex is traded in batches called lots.

In forex, 1 lot is 100,000 units of the base currency. Enter the number of lots as a decimal, such as 0.01, 0.1 or 1. A 0.1-lot trade is one tenth of a lot; a 0.01-lot trade is one hundredth.

Distinguish trade size from total position size. The lots on an order describe that individual trade; total position size is your combined exposure across all open positions. If you open three orders of 0.5 lot each, each order is 0.5 lot and the combined position size is 1.5 lots.

3. Pip Value: What Each Pip Is Worth

First, distinguish the two currencies in a pair. Using EUR/USD:

The pip-value formula is:

Pip value = Contract size per lot × Lots × Pip size

The result is expressed in the pip-value currency, which is the quote currency

For EUR/USD, the pip-value currency is the US dollar:

1. 1 standard lot: 100,000 × 1 × 0.0001 = USD 10 per pip
2. 0.1 lot: 100,000 × 0.1 × 0.0001 = USD 1 per pip
3. 0.01 lot: 100,000 × 0.01 × 0.0001 = USD 0.1 per pip

The familiar statement that “1 standard lot is worth USD 10 per pip” applies only when the quote currency is the US dollar, as in EUR/USD, GBP/USD and AUD/USD.

When the quote currency is not the US dollar, pip value is calculated in that quote currency first:

Take particular care with yen pairs. A pip is 0.01, so the pip value of 1 standard lot is JPY 1,000, not JPY 10.

4. Converting into the Account Settlement Currency

An account balance is recorded in a single currency: the account settlement currency. If this differs from the pip-value currency, convert at the applicable exchange rate.

You need three pieces of information:

1. Lots traded: the size of your trade
2. Pip-value currency: the currency in which pip value is first calculated, namely the quote currency
3. Account settlement currency: the currency into which the result must ultimately be converted for account reporting

Examples with a US-dollar account settlement currency:

As exchange rates change, the converted pip value also changes slightly. In live trading, the platform automatically calculates unrealised profit and loss in the settlement currency, and a trading calculator can help you estimate it beforehand. Understanding the process means knowing what each pip represents in money before placing the order.

5. Calculating Profit and Loss: Four Examples

Profit or loss = Pips × Pip value, with trade size already included in pip value

For a buy position, a closing price above the opening price produces a profit. For a sell position, a closing price below the opening price produces a profit

Example 1: buying EUR/USD for a profit

Buy 1 lot at the ask of 1.08520 and close at the bid of 1.08820.

Pips: 1.08820 − 1.08520 = 0.00300 = +30 pips

Profit or loss: 30 × USD 10 = +USD 300

Example 2: selling GBP/USD at a loss

Sell 0.5 lot at the bid of 1.26500. After the price rises, close at the ask of 1.26700.

Pips: 1.26500 − 1.26700 = −0.00200 = −20 pips

Pip value: 100,000 × 0.5 × 0.0001 = USD 5

Profit or loss: −20 × USD 5 = −USD 100

Example 3: buying USD/JPY and converting into US dollars

Buy 0.2 lot at 150.00 and close at 150.80.

Pips: 150.80 − 150.00 = 0.80 = +80 pips

Pip value: 100,000 × 0.2 × 0.01 = JPY 200

Profit or loss: 80 × 200 = +JPY 16,000; converted at the closing rate of 150.80, this is approximately +USD 106.10

Example 4: gold, calculated directly from the price change

Assume a gold contract size of 100 ounces per lot.

Buy 0.1 lot at USD 2,400.00 and close at USD 2,412.50, using illustrative prices.

Price change: +USD 12.50

Profit or loss: 12.50 × 100 ounces × 0.1 lot = +USD 125

The opening and closing prices in Examples 1 and 2 already account for the spread: a buy opens at the ask and closes at the bid, with the reverse for a sell. If you estimate using the same price for both sides, remember to deduct the spread, as explained in “Understanding a Quote: Bid, Ask and Spread”.

6. Lot Size Determines the Amount at Risk

The same price move can produce very different outcomes at different trade sizes. Suppose an account holds USD 10,000 and EUR/USD moves 50 pips against the position:

The price move is unchanged; only the lot size differs. This is why trade size is central to risk management: it determines the impact of each market movement on your account.

You can also work backwards, first deciding the maximum loss you can accept and then calculating the appropriate number of lots:

Lots = Acceptable loss ÷ (Stop distance in pips × Pip value per lot)

Example: an account holds USD 10,000, and the maximum acceptable risk on one trade is 1%, or USD 100. The stop is 25 pips away, and EUR/USD has a pip value of USD 10 per lot.

Lots = 100 ÷ (25 × 10) = 0.4 lot

This step connects a directional view with loss control. Later lessons on risk management explore it further.

Lots determine exposure; leverage determines the margin required to open that exposure. They are different concepts. Leverage and margin are covered in a separate lesson.

7. Common Mistakes

1. Assuming every currency pair is worth USD 10 per pip per lot: this is true only when the quote currency is the US dollar. Yen pairs and crosses require separate calculations
2. Miscounting pips in yen pairs: a pip is the second decimal place. A move from 150.20 to 150.45 is 25 pips, not 2,500
3. Forgetting the spread: a new position begins one spread behind, so the move needed to break even equals the spread in pips
4. Confusing an individual trade's lot size with combined position size: several orders together can create much more exposure than you realise
5. Looking only at pips rather than money: a 30-pip profit on 1 lot is one hundred times the amount earned on 0.01 lot

Summary

1. Pips: the fourth decimal place for most currency pairs and the second for yen pairs. The extra digit is a point; 1 pip = 10 points
2. Lots: 1 lot = 100,000 units of base currency. A 0.1-lot trade is one tenth of that amount, and a 0.01-lot trade is one hundredth
3. Pip value = Contract size × Lots × Pip size, expressed in the pip-value currency, or quote currency, then converted into the account settlement currency if needed
4. Profit or loss = Pips × Pip value. Increasing lot size increases profits and losses proportionately
5. Set the acceptable loss first, then work backwards to lot size: this is the first step in using calculations to control risk

Risk warning: CFDs are leveraged products. Price movements may cause losses greater than expected, and CFDs are not suitable for all investors. This lesson is for educational purposes only and does not constitute investment advice. All numerical examples illustrate calculation methods only. Actual trading conditions are subject to the platform's published terms.