Pips, points, lots and contract sizes confuse almost every new trader. This guide explains each unit and how to turn price moves into money.
Before you can size a trade or read a strategy's settings, you need to be fluent in the units traders use. They are simple once you see them side by side.
Pips
A pip is the standard unit of price movement in forex. For most pairs it is the fourth decimal place: if EURUSD moves from 1.1000 to 1.1010, it moved 10 pips. For yen pairs it is the second decimal: USDJPY 150.00 to 150.10 is 10 pips.
Points
Most brokers quote one extra decimal, so MetaTrader measures in points, which are one tenth of a pip on forex. 10 pips = 100 points on EURUSD. Many EA inputs are in points, so always check which unit a setting uses - a "stop of 50" could mean 5 pips or 50 pips.
Gold is different
XAUUSD is usually quoted with two decimals, for example 2350.25. Traders tend to talk about gold moves in dollars: "gold moved $10". Brokers differ on what a pip means for gold, so dollar distances are the clearest way to describe stops and targets. Some brokers also quote gold with three decimals, which changes the size of a point - a classic source of EA bugs.
Lots and contract size
A lot is the trade size:
- Standard lot (1.00) - 100,000 units of the base currency in forex, or 100 ounces of gold.
- Mini lot (0.10) - 10,000 units, or 10 ounces.
- Micro lot (0.01) - 1,000 units, or 1 ounce.
Turning moves into money
- EURUSD: 1 standard lot is worth about $10 per pip, so 0.10 lots is about $1 per pip.
- XAUUSD: 1 lot (100 oz) gains or loses $100 for every $1 move in price. 0.01 lots is $1 per $1 move.
So a $7 move against a 0.05 lot gold position costs $35, and the same move on 0.50 lots costs $350.
Margin
Margin is the deposit your broker holds while a trade is open. With 1:500 leverage, a 1-lot gold position at $2,400 (notional $240,000) needs about $480 of margin. Margin is not your risk - your risk is the distance to your stop - but if your losses eat into free margin, the broker can close positions automatically (stop-out).
Quick checklist
- Know whether a setting is in pips, points or dollars.
- Know your broker's contract size for each symbol.
- Calculate the money at risk from stop distance x value per unit x lots.
Getting these units right prevents the most expensive beginner mistake: trading ten times bigger than intended.
Trading forex and gold carries a high level of risk and may not be suitable for every investor. Past performance and backtests do not guarantee future results. This article is education, not financial advice.