The Pathway
The Trader’s Blueprint: Reading Charts, Market Structure, and Analysis

Understanding Pips, Lot Sizes, and Position Sizing

Complete & Continue Next Lesson Learn More

📍 What the Hell is a Pip?

  • A pip (percentage in point) is the smallest price movement in most Forex pairs.

  • In most currency pairs, 1 pip = 0.0001 (fourth decimal place).

  • Example: If EUR/USD moves from 1.1000 to 1.1010, that’s a 10-pip move.

  • Exception: For pairs like USD/JPY, a pip is 0.01 (second decimal place).

🚨 Why Does This Matter?
Because every pip has a monetary value based on your trade size. If you don’t calculate it, you’re basically flying blind.

📍 Lot Sizes: How Much Are You Actually Trading?
🔹 Standard Lot = 100,000 units (1 pip ≈ $10) – Big money, not for small accounts.
🔹 Mini Lot = 10,000 units (1 pip ≈ $1) – A solid choice for intermediate traders.
🔹 Micro Lot = 1,000 units (1 pip ≈ $0.10) – Perfect for beginners managing risk.
🔹 Nano Lot = 100 units (1 pip ≈ $0.01) – Some brokers offer this for ultra-small traders.

💡 Example Calculation:

You buy 1 standard lot of EUR/USD at 1.1000.

  • If it moves 10 pips in your favor to 1.1010, you just made $100.

  • If it moves 10 pips against you, you just lost $100.

  • Now imagine if you’re trading multiple lots—your risk multiplies fast.

📍 Position Sizing: The Key to Not Blowing Your Account
The golden rule: Never risk more than 1-2% of your account per trade.

Position Size Formula:
👉 (Account Balance × Risk %) ÷ (Stop Loss in Pips × Pip Value)

Example:

You have a $10,000 account and risk 1% per trade ($100 risk).
Your stop loss is 20 pips and pip value is $1 per pip (mini lot).
👉 Position Size = (10,000 × 0.01) ÷ (20 × 1) = 0.5 lots (mini lot size)

🔹 Risk too much? → Your account won’t last long.
🔹 Risk too little? → You won’t make enough to grow.
🔹 Find the balance? → You stay in the game long enough to actually win.

🔑 Key Takeaway:
Understanding pips, lot sizes, and position sizing is crucial if you want to survive. The goal is to make money, not gamble. Small lot sizes = survival, proper position sizing = longevity. Get this wrong, and you’ll be making a deposit into your broker’s pocket real soon.