Beginner questions: pips, lots, leverage and margin
No question is too basic here. If you are new to currency trading, this is the place to ask about the mechanics before real money is involved.
Good questions to ask
- How much is one pip worth on the position size I am planning?
- What happens to my margin when a trade moves against me?
- Why did my stop-loss fill at a worse price than I set?
- What is the difference between a standard, mini and micro lot?
Before you post
Say which pair you are asking about, your account currency and the position size, because the answer to "how much is a pip worth" depends on all three. If your question is about a specific broker's rules, name the broker's regulator rather than posting a link.
The guides in the news section cover many of these topics step by step. Post your question below, and experienced members, please explain it the way you wish someone had explained it to you.
Background: How to use leverage responsibly: sizing for survival
Leverage multiplies both the gains and the losses, and the account usually learns this before the trader does. Here is how offered leverage differs from used leverage, and how to set yours so a bad week stays a bad week.
How much leverage should a beginner use?
Far less than the broker offers. What matters is used leverage — the position size relative to the account — and beginners should risk about 1% per trade, which usually means micro or mini lots at most.
What is the difference between offered and used leverage?
Offered leverage is the account's maximum, set by the broker and the regulator. Used leverage is what your open positions actually employ. The second number decides whether a move against you is survivable.
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To get the thread started, here are the four numbers most beginner questions come down to, using EUR/USD on a US dollar account:
- Pip: the fourth decimal place, so 1.1050 to 1.1051 is one pip.
- Pip value: about $10 per pip for a standard lot (100,000 units), $1 for a mini lot and $0.10 for a micro lot.
- Margin: at 30:1 leverage, a standard lot worth roughly $110,000 needs about $3,700 of margin. Leverage changes the margin, not the pip value.
- Risk: a 25-pip stop on 0.10 lots risks about $25. That figure, not the margin, is what you should compare with your account balance.
The arithmetic changes when your account currency isn't the quote currency, for example USD/JPY on a dollar account. What is a pip and leverage and margin explained walk through those cases.
Post your pair, account currency and position size, and members can check your numbers.
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