What a pip actually measures
For most currency pairs a pip is the fourth decimal place, or 0.0001. For pairs quoted against the Japanese yen, a pip is the second decimal place, or 0.01.
Many brokers quote an additional fractional digit, sometimes called a pipette. It refines pricing but does not change how a pip is defined.
Lot sizes translate pips into money
A standard lot is 100,000 units of the base currency, a mini lot is 10,000 and a micro lot is 1,000. The same one-pip move is worth roughly ten US dollars on a standard lot and one dollar on a mini lot for a dollar-quoted pair.
Because pip value depends on the quote currency, positions in pairs that do not settle in your account currency require a conversion step.
Putting the two together
Position sizing works backwards: decide the cash amount you are willing to risk, measure the distance in pips to your stop-loss, then solve for the lot size that makes those two numbers agree.
The Pips School position size calculator performs this calculation, but working through it manually once makes the relationship far easier to remember.
Frequently asked questions
Why is the yen pip different?
Yen pairs are quoted to two decimal places because of the currency's nominal value, so the standard pip convention shifts accordingly.
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The Pips School editorial team writes independent educational material on forex markets, broker selection and risk management.
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