The Grateful Lot

When you choose to buy or sell a currency pair you have to decide the amount you wish to buy or sell.

From the drop down menu below, you may choose to buy 100,000 EUR/USD, or 200,000, or 300,000, etc.

The amount you buy or sell is usually expressed in lots. The standard lot size is $100,000. Therefore, 100,000 is equivalent to 1 lot; 200,000 is equivalent to 2 lots; 300,000 is equivalent to 3 lots . and so on.

A standard lot for, say, USD/CAD is $100,000 US dollars. When we buy one lot of USD/CAD, it means that we get $100,000 US dollars and give a number of Canadian dollars equal to 100,000 times the actual exchange rate. If the current exchange rate of USD/CAD is 1.1, then buying one lot of USD/CAD means that we get $100,000 US dollars and give $110,000 (i.e. 100,000 x 1.1) Canadian dollars.

When we sell one lot of USD/CAD at the same exchange rate, it means that we give $100,000 US dollars and get $110,000 Canadian dollars.

If you open a mini account (rather than a standard account) you will trade in mini lots. A mini lot size is $10,000.

Calculating the Pip Value per lot As stated before, currencies are measured in pips. A pip is the smallest increment of a currency. These increments, though tiny, could result in significant profits or losses depending on the amount of lots you trade. The more lots you trade (i.e. the more you buy or sell) the greater your profit or loss.

Each pip has a value (called pip value) depending on the number of lots that you trade.

Your trading platform will compute the Pip Value per lot and display it on screen. But it's useful to know how it is computed.

Pip Value per lot = lot size x pip size in units of the quote currency (second currency of the pair).

Let's assume that you trade 1 lot of EUR/USD ($100,000). The value per pip is calculated as follows:

lot size x pip size in units of the quote currency = $100,000 x .0001 = $10.

When you trade 2 lots, Pip Value = $200,000 x .00001 = $20.

When you trade 3 lots, Pip Value = $300,000 x .00001 = $30.

Of course, the value per pip also depends on the currency that you trade.

As stated above, your broker's trading platform will compute the pip value automatically.

Here is a summary of the Pip Values per 1 lot for the major currency pairs.