PIPS - LOTS

Pip (or Points) is the term used in currency market to represent the smallest incremental move (the last significant digit) an exchange rate can make.

Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF, AUD/USD, USD/CAD and .01 in the case of USD/JPY, GBP/JPY).

The Base currency is the term for the first currency in the pair.
The Counter currency is the term for the second currency in the pair.
The Exchange rate represents the number of units of the counter currency that one unit of the base currency can purchase.

For example, let’s suppose the exchange rate for the EUR/USD (European Euro/United States dollar) is 1.3785. This means that 1 EURO (the first currency in the pair, also known as the base currency) is the equivalent of 1.3785 US dollars (the second in the pair, known as the counter currency). This is the standard quoting convention for exchange rates; the exchange rate represents how much 1 unit of the base currency (first currency in the pair) can purchase of the counter currency (second currency in the pair).

The number of pips that the exchange rate moves dictates how much a trader has gained or lost through an FX trade. In the example above, the pair has risen by a 100 pips.

LOT Size:

In the currency market, contract sizes are referred to as lots.

A standard contract is equal to 100,000 units of the Base Currency. For example, a trader placing a 4 lot trade (USD/JPY) is thus trading $ 400,000 dollars in the market. The LOT sizes determine the Pip values based on the contract size you are trading. Today many currency brokers now offer ‘mini’ or even ‘micro’ lots. Mini contracts are simply 10% the size of a standard lot, a micro contract would thus be 10% the size of a mini contract.