Last lesson gave you the map of the market. This one gives you its units — and it's the most practically important lesson in the course, because nearly every blown beginner account traces back to a misunderstanding on this page. Pips measure movement, lots measure size, leverage measures borrowing. Get these three straight and sizing a trade becomes simple math; leave them fuzzy and every trade is a guess with a dollar sign on it.
The pip: the market's unit of movement
A pip is the standard unit of price change. On most pairs it's the fourth decimal place — 0.0001. On Japanese yen pairs it's the second decimal — 0.01 — because yen prices are about a hundred times larger.
| Pair | Price moves from → to | Change |
|---|---|---|
| EUR/USD | 1.0850 → 1.0862 | +12 pips |
| GBP/USD | 1.2700 → 1.2650 | −50 pips |
| USD/JPY | 155.20 → 155.65 | +45 pips |
Modern platforms usually show one decimal beyond the pip — the fifth decimal on EUR/USD. That extra digit is a pipette, one-tenth of a pip. It exists so brokers can quote spreads more precisely; when one advertises a "0.8 pip spread," the pipette is where that 0.8 lives. When you count a move, count pips, not pipettes — reading 250 pipettes as 250 pips is a classic beginner mix-up.
Why bother with pips instead of just dollars? Because pips put every pair on the same yardstick. "EUR/USD moved 80 pips" and "USD/JPY moved 80 pips" describe the same kind of distance, even though the raw decimals look completely different. Stops, targets, spreads, and daily ranges are all quoted in pips for exactly this reason.
(One heads-up for later: instruments like gold don't use pips — metals move in dollars and cents, and the conventions vary by broker. The idea carries over; the unit doesn't.)
Lots: the market's unit of size
A pip tells you how far price moved. A lot tells you how much of your money moves with it. Forex trades in standard batches:
| Lot | Units of base currency | Pip value on EUR/USD |
|---|---|---|
| Standard | 100,000 | ≈ $10 per pip |
| Mini | 10,000 | ≈ $1 per pip |
| Micro | 1,000 | ≈ $0.10 per pip |
This little table is the bridge between distance on a chart and damage to your account. A 40-pip stop-loss is $400 of risk on a standard lot, $40 on a mini lot, $4 on a micro lot — same trade, same chart, three totally different outcomes for a $2,000 account. When traders say "size kills accounts, not stops," this table is what they mean.
The ≈ matters: those dollar values are exact when the US dollar is the second currency in the pair (EUR/USD, GBP/USD). On other pairs — USD/JPY, EUR/GBP, gold — pip value drifts with the exchange rate. Don't memorize conversion formulas; that's what the pip value calculator is for. What you should burn into memory is the shape of the ladder: each lot size is 10× the risk of the one below it.
Leverage: the most misunderstood number in trading
Here's what leverage actually is: a deposit rule. At 30:1 leverage, the broker asks you to put down 1/30th of a position's full value to hold it. One mini lot of EUR/USD at 1.0850 is a $10,850 position, so the deposit set aside — called margin — is about $362. That's all the ratio does.
Here's what beginners think it is: a profit machine. The marketing — "turn $1,000 into control of $30,000!" — practically begs you to open the biggest position your deposit allows. But notice what leverage did not change: a pip on that mini lot is worth $1 whether your leverage is 5:1 or 500:1. Leverage never changes what a pip is worth. It only changes how oversized a position you're allowed to open. It moves the ceiling, not the odds — and the ceiling is not a target.
The right way to think about it: leverage frees up cash. It lets a sensibly-sized trade tie up less of your account as deposit. The trade's size itself should come from one place only — your risk per trade and your stop distance, which is the final lesson's whole subject.
Margin calls, briefly: if your open losses eat down toward the deposit you've posted, the broker first warns you (a margin call), then starts closing your trades for you (a stop-out) to protect itself. Traders who size from risk almost never meet this machinery. Traders who size from "how much can I open?" meet it in their first month.
Next lesson: How to read a candlestick chart — what a candle actually records, what wicks mean, and why you don't need to memorize a zoo of patterns.