Lots, Pips, and Profit&Loss

Understanding what is a Lot

When trading financial instruments, determining the right lot size is crucial for managing risk and maximizing profits. A lot represents the quantity of units, amount, or value traded in an instrument, varying based on its contract size.

A lot is a standardized trading size in financial markets. Its value differs depending on the asset class and instrument specification:

Forex: 1 Standard Lot = 100,000 units of the base currency.
Commodities: Lot sizes vary (e.g., 1 lot of Gold = 100 ounces).
Crypto: Defined by exchanges, e.g., 1 lot of BTC might equal 1 BTC or a fraction.
Stocks and Indices: Typically measured in shares or contracts.

You can find information on the commission per lot for each account type in the FAQ Commission Information and information on the contract size of all instruments in the FAQ Available Instruments and Specifications.

What is a Pip and a Point?

PIP stands for 'Percentage in Point' and the PIP represents the second from last or penultimate digit in a quote.

For this example, we will use a quote from GBPUSD of 1.26835, the PIP would be represented by the '5' as shown below.

1.26853

In the case of SPX500 if we have a quote of 6,150.30 the PIP would be represented by the '3' as shown below.

6,150.30

For reference, the final digit after the PIP is referred to as the 'point' or in Forex as a 'pipette'

How do I calculate the value of 1 PIP?

Pip value depends on the instrument type and its contract size. You can calculate it using the following formula:

Formula: Pip Value = Lot Size × Contract Size × Pip Size

Examples of Some PIP Value Calculations

Let's try 3 Pip Value calculations on some instruments, such as NAS100, USDJPY and EOSUSD. We will calculate the PIP Value for a 0.20 lot trade on each instrument.

NAS100 has 2 digits (the PIP represents 0.10)
USDJPY has 3 digits (the PIP represents 0.010)
EOSUSD has 4 digits (the PIP represents 0.0010)

Contract Size x Lot Size x Pip Size
NAS100: 10 x 0.20 x 0.1 = USD 0.20
USDJPY: 100,000 x 0.20 x 0.01 = JPY 200
EOSUSD: 10,000 x 0.20 x 0.001 = USD 20

It’s important to note that the Pip Value is always calculated in the quote currency—the second currency in a Forex pair or the designated quote currency for indices and crypto pairs. Our platform will automatically convert this into your account currency at the current exchange rate.

Calculating Profit&Loss

You can then calculate the profit/loss by multiplying the Pip Value by the pip movement of the trade. The pip movement is calculated using the formulas below:

Pip movement for long📈positions:
(Close price - Open price) / Size of Pip

Pip movement for short📉positions:
(Open price - Close price) / Size of Pip

To calculate the P&L use:
Pip Value x Pip Movement

Example of a Profit&Loss Calculation

For example, if you open a 1 lot long on EURUSD at 1.10051 and close it at 1.10351, your Pip Value would be the following:

Pip Value = 100,000 x 1 x 0.0001 = 10

Pip Movement = (1.10351 - 1.10051) / 0.0001 = 30

Profit/Loss = 10 x 30 = 300 USD

Please keep in mind that the result of this formula will always be given in terms of Quote Currency, you will then need to convert this to your account's set currency.