Lots, Leverage, and Profit & Loss
Trade sizes, borrowed money, and how to count your wins
Read
Forex trades in cartons, not single eggs. Here is how trade size, borrowed money, and a moving price turn 20 little pips into $137.40.
You cannot buy a single euro any more than you can buy a single egg. Forex trades in cartons — fixed bundles called lots — and the size of your carton decides whether a one-pip move is worth a cent or a small fortune.
A “lot” is simply a unit that measures how much currency you buy or sell. When you place an order on your platform, it is sized in lots — never in loose single units.
Think of an egg carton (or egg box, in British English). You do not buy one egg; you buy a carton, and one carton holds twelve.
The four lot sizes
The standard lot is 100,000 units of currency. There are also mini, micro, and nano lots — 10,000, 1,000, and 100 units. Same idea, just smaller cartons.
Some brokers show quantity in “lots”; others show the actual currency units. Either way, it is the same thing.
A change in one currency against another is measured in “pips” — a very, very small fraction of a unit of value. To turn that minute change into real money, you have to trade large amounts of currency.
Size is the desk word for how big a position is. “What size are you?” means “how many lots are you trading?” More size means bigger swings per pip — in both directions.
What a pip is worth
Pip value depends on the pair and the lot size. Using a standard 100,000-unit lot:
USD/JPY at 150.00: (.01 / 150.00) × 100,000 = $6.67 per pip.
USD/CHF at 1.4555: (.0001 / 1.4555) × 100,000 = $6.87 per pip.
When the U.S. dollar is not quoted first, add one step — multiply by the rate. EUR/USD at 1.1930: (.0001 / 1.1930) × 100,000 × 1.1930 ≈ $10 per pip. In fact, for any USD-quote pair, a standard lot is worth about $10 per pip.
Here is how pip value scales with lot size:
EUR/USD — any rate — Unit: $0.0001 · Standard lot: $10 · Mini lot: $1 · Micro lot: $0.10 · Nano lot: $0.01
USD/JPY — 1 USD = 150 JPY — Unit: $0.0000667 · Standard lot: $6.67 · Mini lot: $0.667 · Micro lot: $0.0667 · Nano lot: $0.00667
Your broker computes pip value for you and updates it as the market moves — but knowing where the number comes from is what keeps you in control of your risk.
Leverage: controlling $100,000 with $1,000
How can a small trader move 100,000 units at a time? Leverage.
Think of your broker as a bank that fronts you $100,000 to buy currencies. All it asks is a good-faith deposit — say $1,000 — which it holds for you but does not necessarily keep. That deposit is called margin.
The leverage you use depends on your broker and what you are comfortable with. The broker sets how much margin each lot requires, then deducts or adds every loss and gain to your cash balance.
Example: leverage is 100:1 (1% margin) and you want a $100,000 position but hold only $5,000. No problem — the broker sets aside $1,000 as margin and lets you “borrow” the rest. At 1% margin, every $100,000 traded needs $1,000 on deposit.
The margin you put up is not a fee. The broker holds it while the trade is open and returns it when you close. It is collateral against the risk that the position loses money.
To keep the trade open, your account equity (its absolute value) must stay above the required margin — here, $1,000 — at all times.
If the market moves against you and your equity falls below that level, the broker’s system automatically closes the trade — a margin call or stop out.
This is a safety mechanism designed to limit further losses. It usually keeps your balance from going negative, but it is not guaranteed — in fast markets prices can gap straight past the stop-out level.
The same leverage that lets $1,000 control $100,000 magnifies losses exactly as fast as gains. A move of just 1% against a $100,000 position is a $1,000 loss — your entire margin, gone. Used carelessly, leverage is the quickest way to blow up an account. Respect it, and never trade size you cannot afford to lose.
How to calculate profit and loss
You know pip value and leverage — now the payoff. Buy U.S. dollars, sell Swiss francs, and watch a 20-pip move become real money.
The rate is 1.4525 / 1.4530. Because you are buying, you deal on the ASK of 1.4530, and buy 1 standard lot (100,000 units). Hours later the quote is 1.4550 / 1.4555; to close a buy you must sell, so you deal on the BID of 1.4550. The move from 1.4530 to 1.4550 is .0020 — 20 pips. Pip value = (.0001 / 1.4550) × 100,000 = $6.87. So 20 pips × $6.87 = $137.40 profit.
The ladder is P&L counted in pips. “I’m up 20 on the ladder” means the trade has moved 20 pips your way — multiply by the pip value to get dollars.
The bid/ask spread
Every time you enter or exit a trade, you cross the spread — the gap between the bid and the ask.
When you buy, you use the offer (ASK) price. When you sell, you use the BID price.
Opening and later closing a position is a round-turn. You cross the spread — the toll — once on the way in and once on the way out, so you pay it twice per round-turn.
A lot is your trade size — standard 100,000, mini 10,000, micro 1,000, nano 100 units. Leverage lets a small margin deposit control a big position, and it magnifies losses as much as gains. P/L = pips moved × pip value; buy at the ask, sell at the bid.
See you on the desk. — AI Mentor