Beginner4 steps · 14 min of reading

Forex Essentials: Pips, Lots, Leverage and Costs

Four steps from pip value to lot size, leverage and the spread and swap costs that decide whether a forex strategy clears its own overheads.

New to trading? Work through Trading Foundations first — this path assumes you can already size a position from a stop.

What you’ll be able to do

  • Calculate pip value for any pair, including JPY crosses
  • Convert a pip-distance stop into a lot size your account can carry
  • Tell the difference between the margin a trade locks up and the risk it takes
  • Estimate the spread and swap drag on a strategy before trading it

The path

  1. Price one pip in your account currency for any pair.

    Practice

    Price a pip on USD/JPY for one standard lot, then switch to a micro lot.

    Open the Pip Value calculator →
  2. Read standard, mini and micro lots as unit counts rather than as jargon.

    Practice

    Turn a 40-pip stop on a $5,000 account into lots, then widen the stop to 80 pips.

    Open the Lot Size calculator →
  3. Work out the margin a position ties up and how far price can move before a stop-out.

    Practice

    Find the margin on a standard lot at 1:30, then compare 1:100 and 1:500.

    Open the Margin / Leverage calculator →
  4. Put a number on the spread and swap a strategy pays over a month.

    Practice

    Cost 40 standard-lot trades at a 1.2-pip spread, then try 0.6 pips plus commission.

    Open the Spread Cost calculator →

Start with step 1

The steps build on each other — the position sizing in step three depends on the stop placement in step two.

Read: How to Calculate Pip Value (With Examples)

Other paths