Home / Course / Module 2 / Pips, Lots and Spreads: Measuring Moves and Costs
Module 2 · Lesson 3 of 7To know what a trade could gain or lose, you need three measuring tools: the pip, the lot and the spread. This lesson shows each one with step by step arithmetic.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Educational content only. Nothing here is a recommendation, and no result is guaranteed.
A pip (percentage in point) is the standard unit for measuring price moves. On most pairs, one pip is the fourth decimal place, 0.0001. On pairs with the Japanese yen, one pip is the second decimal place, 0.01.
Many brokers show an extra decimal place called a pipette (or fractional pip), worth a tenth of a pip. EURUSD at 1.10005 has a pipette of 5.
| Pair | Pip size | Example move |
|---|---|---|
| EURUSD | 0.0001 | 1.1000 to 1.1025 is 25 pips |
| GBPUSD | 0.0001 | 1.3000 to 1.2940 is 60 pips (down) |
| USDJPY | 0.01 | 150.00 to 150.40 is 40 pips |
Gold is different, because it is not a currency. Brokers define a 'pip' for gold in different ways, commonly a 0.10 or 0.01 move in the dollar price. Always check your own broker's contract specification before trusting any gold pip figure. Many gold traders simply talk in dollars of price movement instead.
A lot is a standard quantity of the base currency. Position size is how many lots you trade.
Lot sizes are in units of the base currency. One standard lot of EURUSD is 100,000 euros. Many brokers allow sizes in between, such as 0.25 lot, and some use a different minimum, so check the platform.
Gold contracts are different again. A common set-up is that 1 lot of XAUUSD equals 100 troy ounces, but this varies by broker. Never assume: read the specification.
Pip value is how much money one pip is worth for your position size. The formula for pairs where the quote currency is your account currency:
Pip value = pip size x position size in units (result is in the quote currency).
Here the quote currency is yen, so the pip value starts in yen and must be converted.
So the same one lot has a different pip value in dollars on different pairs. This is why position sizing should be done per pair.
The spread is the gap between the bid (price you sell at) and the ask (price you buy at). It is the broker's, or the market's, charge for providing the trade. You pay it the moment you open, which is why a position starts slightly negative.
Spreads are not fixed. They tend to be tighter on busy majors in busy sessions and wider on exotics, at quiet times, and around major news. Some brokers offer 'raw' spreads plus a separate commission. Compare the total cost per lot, not just the spread headline.
Gold's spread is also costly to ignore: see how it fits into the cost of a trade in Gold Trading for Beginners.
The three tools combine in a quick pre-trade check: how many pips away is my stop, what is that in money at my lot size, and what does the spread cost me?
A 1 lot position in EURUSD moves about $10 per pip. A 50 pip move is $500, which can be a large share of a small account. Leveraged trading can lose money quickly.
Here is one complete pre-trade calculation using hypothetical numbers.
If $120 is more than you are willing to lose on one trade, the answer is to shrink the lot size, not to move the stop closer without thinking. At 0.15 lot the same 40 pip stop risks $60. Working this way, risk is chosen first and lot size follows.
Real fills can differ from the plan because of slippage and changing spreads, so treat these numbers as the expected case, not a promise.
For currency pairs the pip size is standard. Gold and some other instruments are defined differently by different brokers, so check the contract specification.
It is a tenth of a pip, the fifth decimal place on most pairs. It lets brokers quote more precise prices.
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