A pip is the smallest standard price move on a currency pair, a lot is how many units you trade, and leverage is borrowed buying power that lets a small deposit control a large position. Together they decide how much money each price tick puts at risk, so understanding them is the first step to sane position sizing.
If you have ever opened a trade and watched the profit number swing faster than you expected, this is why. These three ideas set the scale of everything that happens in your account. Get them clear and the rest of trading becomes far easier to reason about.
A pip stands for "percentage in point" and it is the standard unit used to measure how far a price has moved. On most currency pairs, one pip is 0.0001 of the quote currency. So if EUR/USD moves from 1.1050 to 1.1051, that is a one pip move.
Pairs that involve the Japanese yen are the exception. Because yen prices are quoted to two decimal places, one pip there is 0.01. A move on USD/JPY from 156.20 to 156.21 is one pip.
A pipette is one tenth of a pip. Most brokers quote prices to five decimal places (or three for yen pairs), and that extra final digit is the pipette. It gives more precise pricing but it is not the unit you size trades around. When you read a price like 1.10505, the 5 at the end is five pipettes, or half a pip.
A lot is simply the quantity of the base currency you buy or sell. Position size is expressed in lots, and the broker scales everything from there. There are three common sizes plus the units behind them.
| Lot type | Units | Lots value | Approx pip value* |
|---|---|---|---|
| Standard | 100,000 | 1.00 | $10.00 |
| Mini | 10,000 | 0.10 | $1.00 |
| Micro | 1,000 | 0.01 | $0.10 |
| Nano (some brokers) | 100 | 0.001 | $0.01 |
*Pip value shown for a pair where USD is the quote currency, such as EUR/USD. Pip value differs on other pairs and on metals, indices and crypto.
This is the bridge between "how far price moved" and "how much money changed hands". For a pair quoted in US dollars, the math is clean. One standard lot is 100,000 units, and one pip is 0.0001, so each pip is worth 100,000 × 0.0001 = $10. Scale that down and a mini lot is worth $1 per pip and a micro lot is worth 10 cents per pip.
That single fact controls your risk. If you buy one standard lot and the market moves 20 pips against you, that is a $200 loss. The same 20 pip move on a micro lot is a $2 loss. The chart looks identical; only the lot size changed the damage.
Knowing pip value is half the battle. Knowing when the setup is worth trading is the other half.
Try Market Structure Pro free for 7 daysLeverage is the borrowed buying power a broker extends so you can open a position much larger than your deposit. It is written as a ratio. At 1:100 leverage, every $1 of your money controls $100 in the market, so $1,000 can control a full standard lot.
The catch is that leverage cuts both ways with perfect symmetry. It multiplies your gains and your losses by exactly the same factor. Leverage does not, by itself, set your dollar risk on a trade. What it does is make large lot sizes affordable, and that is where beginners get hurt. Just because you can open ten standard lots on a small account does not mean the risk is survivable. A modest move against an oversized position can erase the account in minutes.
Margin is the slice of your balance the broker locks up as a good-faith deposit while a trade is open. At 1:100 leverage, opening one standard lot worth $100,000 requires $1,000 of margin. That money is not lost; it is set aside and released when you close the position.
Free margin is your equity minus the margin already in use. It is the cushion that absorbs open losses. As a trade moves against you, your equity falls and free margin shrinks. If it runs out, the broker issues a margin call and can close positions automatically, a stop out, to protect itself. Keeping plenty of free margin is what stops one bad trade from forcing the rest of your book shut.
You have a $5,000 account and want to risk 1% on a EUR/USD trade with a 25 pip stop.
Notice what happened. The leverage and lot size never set the risk. The $50 you chose to risk set the risk, and then pip value told you the correct lot size to honour it. Leverage only determined that you needed $400 of margin, leaving $4,600 of free margin as a buffer. That is the right order of operations: decide the dollar risk first, then size the position to fit it.
Every disciplined approach to risk management runs through these same numbers. You pick a percentage of your account to risk, measure your stop in pips, convert with pip value, and arrive at a lot size. Leverage simply has to be high enough to afford that position, no more. Treating leverage as a target rather than a tool is the most common beginner mistake.
MSP is a premium MT5 indicator that fuses 27 tools into one clear verdict, with a confidence score, an A, B or C grade and a plain-English reason for the call. It is non-repainting and works on every MT5 instrument. It helps the decision side, telling you when a setup is worth taking. The sizing and risk side, the lots and leverage above, stays in your hands, exactly where it belongs. Start with a free 7-day trial and keep your position sizing rules firmly your own.
Want to go deeper on the tools that read the chart for you? See our guide to the best MT5 indicators for 2026, or head back to Learn for more beginner explainers.
Get a clear verdict, confidence and grade on every chart you trade.
Start your free 7-day trial