Day 7/30: Forex Basics - Pips and Pip Value
Why do traders talk about pips instead of percentage moves?
A pip is the smallest standard price increment in most currency pairs:
EUR/USD moves from 1.0850 to 1.0851, that is 1 pip (0.0001).
Pip value tells you what one pip is worth in money:
A standard lot of EUR/USD (100,000 units) = 10 USD per pip.
Put it into practice:
- Stop loss set at 20 pips
- Position size: 1 standard lot
- Total risk = 20 x 10 = 200 USD
So position sizing is just one formula:
Lots = Risk you can afford / (Stop pips x Pip value)
If you can afford to lose 200 USD and your stop is 20 pips at 10 USD per pip, the answer is 1 standard lot. Do the math before you click buy or sell - that is the real first step of risk management.
Risk reminder: Forex trading involves high leverage and you can lose your entire capital. This is educational content only, not investment advice.
Why do traders talk about pips instead of percentage moves?
A pip is the smallest standard price increment in most currency pairs:
EUR/USD moves from 1.0850 to 1.0851, that is 1 pip (0.0001).
Pip value tells you what one pip is worth in money:
A standard lot of EUR/USD (100,000 units) = 10 USD per pip.
Put it into practice:
- Stop loss set at 20 pips
- Position size: 1 standard lot
- Total risk = 20 x 10 = 200 USD
So position sizing is just one formula:
Lots = Risk you can afford / (Stop pips x Pip value)
If you can afford to lose 200 USD and your stop is 20 pips at 10 USD per pip, the answer is 1 standard lot. Do the math before you click buy or sell - that is the real first step of risk management.
Risk reminder: Forex trading involves high leverage and you can lose your entire capital. This is educational content only, not investment advice.
