What is a Lot, Pip, Point, and Tick in Forex?

What is a Lot, Pip, Point, and Tick in Forex?

Lot

A lot is a standardized unit of measurement used to quantify the size of a Forex trade. It represents the volume or quantity of a particular currency pair being traded. There are three main types of lots:

  • Standard Lot: A standard lot equals 100,000 units of the base currency in a currency pair. For example, if you are trading the EUR/USD currency pair, a standard lot would be 100,000 euros.
  • Mini Lot: A mini lot is one-tenth the size of a standard lot, representing 10,000 units of the base currency.
  • Micro Lot (Сent lot for cent accounts): A micro lot is one-tenth the size of a mini lot and 1/100th of a standard lot, representing 1,000 units of the base currency.

Pip

A pip, short for “percentage in point,” is the smallest unit of price movement in a currency pair for a 4(2)-digit quote. It represents the fourth decimal place in most currency pairs, except those involving the Japanese yen, where it represents the second decimal place. For example, if the EUR/USD exchange rate changes from 1.2500 to 1.2501, that is a one-pip movement. For USD/JPY, the change from 144.97 to 144.98 is a 1-pip change.

Point

With the advent of 5(3)-digit quoting (when EUR/USD has 5 decimals after the decimal point, for example, 1.25653, and for pairs with Japanese yen - 3 decimals after the decimal point, for example, for USD/JPY - 135.565) many traders began to get confused as to what now counts as a pip. To avoid confusion, a concept called a point or pipette, which represents a fraction of a pip, was introduced. It is the fifth decimal place in most currency pairs like EUR/USD and GBP/USD, and the third decimal price in JPY currency pairs like USD/JPY and GBP/JPY. As a rule, 1 pip = 10 points.

Pips are used to calculate profit and loss, determine stop-loss and take-profit levels, and measure the spread between bid and ask prices.

What is a Lot, Pip, Point, and Tick in Forex?

Tick

In the Forex market, a tick usually represents the smallest change in the exchange rate of a currency pair. For example, consider the EUR/USD pair trading at 1.2000. If the price changes to 1.1999 or 1.12001, this would be a one tick movement. But ticks do not have to be measured in factors of 10. For example, a market might measure price movements in minimum increments of 0.25. For that market, a price change from 500.00 to 501.00 (500.00 - 500.25 - 500.50 - 501.00) or from 500 to 499 (500.00 - 499.75 - 499.50 - 499.00) is a four ticks movement.

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