Pips, spreads and lots are common terms in retail forex. They describe how quotes are measured, what it costs to transact and how much currency a position represents. Knowing the definitions helps you compare quotes; it does not remove the risk of a market move.
What is a pip?
A pip is a conventional unit for describing a small change in a currency pair. For most pairs, one pip is 0.0001. For yen pairs, one pip is typically 0.01 because the quote is expressed with fewer decimal places. Some platforms display fractional pips, also called pipettes, as an extra digit.
For example, a move in EUR/USD from 1.0800 to 1.0810 is ten pips. A move in USD/JPY from 150.20 to 150.30 is also ten pips. The percentage or cash impact depends on the amount traded and the account currency.
Bid, ask and the spread
The bid is the price at which a dealer is willing to buy the base currency; the ask is the price at which it is willing to sell. The ask is usually higher than the bid. Their difference is the spread, commonly measured in pips. A narrower spread can reduce the immediate cost of entering and exiting, though commission, slippage and financing may also apply.
Spreads can widen around major economic announcements, at quiet market hours, during holidays or when liquidity is thin. A spread shown in a marketing example may not match the quote available for a particular account or moment. Compare the actual bid and ask alongside any commission.
What does a lot mean?
A lot is a standardized position size used by many forex providers. A standard lot is often 100,000 units of the base currency, while mini and micro lots are commonly one-tenth and one-hundredth of that size. Contract definitions vary, and some services let clients choose a non-standard amount.
A pip's cash value changes with the lot size, the pair and the account's home currency. A ten-pip move on a small position is not the same as a ten-pip move on a large one. Confirm the provider’s contract specification and potential margin requirement before placing a trade.
Estimate the rate before comparing fees
An indicative forex rate gives context for the pair's price, but it is not necessarily an executable quote. When exchanging money, compare the amount delivered after both the provider's exchange-rate markup and its explicit fees. For a cash conversion, you can convert an amount between currencies as a reference point.
These terms make trading screens easier to understand, but they are not a strategy. Leverage can magnify losses as well as gains, and a small-looking pip movement can have a large effect on an oversized position.
