What is a pipette?

What is a pipette?

A pipette is equal to one-tenth of a pip. Some people might also refer to it as a micro pip, but that’s not near as cute as pipette is. Now, depending on the decimal position of the pip, whether it’s in the second or fourth position, a pipette would be in the third or fifth decimal position respectively.

In case your broker displays pips and pipettes, don’t give it too much thought. You can just ignore the pipette when you’re calculating the amount of pip profit/loss.

Now that you know what a pip and a pipette, you should be able to explain these two concepts to anyone who might come to ask you about it.
Understanding Lot sizes in Forex Trading
In the previous section, we explained what a pip is and showed how to calculate its value. We ended up with pip values that were negligible at best. In some cases, we even got $0.00010201999 in the USD/CHF currency pair.

With that said the standard size of a lot of 100,000 units. ‘What does that mean?’ You might ask. Well, to put things into perspective, the meager value of the pip we found earlier was actually the value of a pip per unit. Having said that, you can now see how this all ties up. Let’s say you enter a long position and you buy 100,000 units (or a lot) of the USD/CHF currency pair. All you need to do is multiply the value of a pip per unit by the number of units you have; in this case, you have 0.00009250 X 100,000 = $9.25 USD. So a pip in this example is worth $9.25 which is quite the sum.

There are many types of lots depending on how much risk you are willing to take, here are the four categories:

Standard lot = 100,000 units of base currency, or 1 lot.
Mini lot = 10,000 units of base currency, or 0.1 lot.
Micro lot = 1,000 units of base currency, or 0.01 lot.
Nano lot = 100 units of base currency or 0.001 lot.

As you can tell, the micro and Nano lots are for those who want to trade and not risk too much money. We strongly advise against trading with standard lots in your first trades as it can suck you dry really fast. You wouldn’t want to lose 100 pips in a trade, especially if a pip is worth $9.25. That’d be a nightmare! That’s like $925 down the drain. However, with mini lots, where there are 10,000 open units, a pip would be worth $0.9250 which is still a good value without running such a huge risk.

Now that you know about lots, we can start calculating the value of a pip per lot instead of the last section where all our calculations were for the value of a pip per unit. Up until now, we know that a pip on a GBP/USD trade is worth $0.00009999999. With a mini lot (0.1), the value of pip per lot is $0.9999. All that’s left now is calculating the profit you would make per pip, and that’s a simple process. It involves two easy steps:

Calculate the per unit value of a pip.

USD/JPY = 113.48

0.01/113.48 =0.00008812125

1 pip = 0.00008812125 USD per unit

Multiply the per unit value by the lot size you are using.

0.00008812125 USD x 10,000 units = 0.88121254846 USD

If the value that you got is not in USD, you’ll have to change the formula a tad bit to get the value of the pip in USD.

Calculate the per unit value of a pip.

GBP/USD = 1.3021

0.0001/1.3021 = 0.00007679901

1 PIP = 0.00007679901 GBP

Multiply the per unit value by the lot size you are using.

0.00007679901 USD x 10,000 units = 0.7679901 GBP

Multiply the value per pip by the rate of the pair.

0.7679901 x 1.6443 = 0.99999990921 USD

After we round this value up we get $1 per pip.

Even though these are bigger and better numbers than the previous calculations, we’re still a long way off from actually making a decent profit. This is where the magic happens, and by magic we mean leverage. Don’t worry; it’s not actually magic, we’ll dive into more detail about it now.