Simply put, a forex pip is the smallest price change that a currency pair can make. More precisely, a pip is the change in the fourth digit in a forex quote. Let us look at an example. If you buy the EURUSD pair at 1.3902 and sell it at 1.3905, you have made a (5-2) 3 pip profit, otherwise known as a 3 pip win. On the other hand, if you buy at 1.3640 and sell at 1.3634, you have made a 6 pip loss. I hope you can calculate and see how we have arrived at that figure.
You might be wondering, in cold hard cash, how much money that is. Well, it depends on how much money you had put in, the leverage applied and your lot size. For example, if you buy a standard lot (100,000 units) of the EURUSD pair, you should (roughly) make 10USD per pip. Of course for you to buy 100,000 units you can either put in 100,000EUR with NO LEVERAGE or put in 1,000USD with a 100:1 leverage, but please be careful with leverages because just as they amplify profits, they amplify losses too and can wipe you out in seconds. A 10:1 leverage is more than adequate for any non-aggressive trading.
By the same token, if you trade a mini lot (10,000 units) you will make 1 USD per pip and if you trade a micro lot, you will make 10US cents per pip or a dollar every 10 pips.
Standard lots are normally called 1 lot, mini lots 0.1 and micro lots 0.01, then multiples of the same enumerated as 0.03 for 3 micro lots and so forth and so forth.
If you have any questions regarding forex lots just pop them in the comment section below and I will get back to you as soon as your questions pop up on my dashboard.
You can also click HERE to open a forex broker account right now and start trading forex immediately.
I wish you happy and prosperous trading.