The Beginner’s Guide to Pips, Ticks, Points, and Lots in Forex & Futures
Introduction: Terminology 101
Trading Foreign Exchange (Forex) or Futures and Options can sometimes feel like speaking a foreign language to a newcomer. Professional traders casually mention “pips,” “ticks,” “points,” and “lots” to describe price changes and trade sizes.
If you don’t understand these four terms, you have no way to know exactly how much profit or loss each trade is generating or, most importantly, how much risk you are taking on with each trade.
1. The Pip: Forex Traders’ Essential Unit of Measurement
A Pip, short for “Percentage in Point” or “Price Interest Point,” is a unit of measurement used to express the change in value between two currencies. For most currency pairs, a pip is the fourth decimal place (0.0001) in the exchange rate.
Currency pairs often quote with an additional fifth decimal place. These fractional price movements are called pipettes (sometimes “fractional pips”). 1 pip = 10 pipettes.
A pip’s monetary value is determined by the currency pair and lot size. When USD is the quote currency, standard values apply: Standard Lot = $10, Mini Lot = $1, Micro Lot = $0.10, Nano Lot = $0.01.
Pips vs. Points: Clearing Up the Common Confusion
In Forex, count price movement in pips. In Indices, Stocks, and Futures, count price movement in points. A 10-pip move is NOT the same as a 10-point move!
2. Ticks and Points Explained: Futures Trading
While Forex trading is measured in pips, in Futures you will see these two terms: ticks and points. It is very important to understand both of these and know the relationship to pips.
A Tick is the smallest possible price increment that a given futures contract can move in price. It is the futures market’s equivalent of a pipette, with a defined monetary value.
A Point in futures is a whole number price movement of 1.0. It is a much larger unit of measure than a tick. Each futures contract has a unique value assigned to 1 point.
Breaking Down Key Futures Contracts
| Contract | Tick Size | Tick Value | Point Value |
|---|---|---|---|
| YM E-Mini Dow | 1.0 | $5 | $5 |
| NQ E-Mini Nasdaq-100 | 0.25 | $5 | $20 |
| MNQ Micro Nasdaq-100 | 0.25 | $0.50 | $2 |
| ES E-Mini S&P 500 | 0.25 | $12.50 | $50 |
3. Lots: The Important Bridge Concept
The Lot is how you actually quantify the number of currency pairs or futures contracts you buy/sell per trade. It acts as the final bridge between the pip/tick movement and the actual monetary value.
| Lot Type | Units | Notation (MT4/5) | Pip Value |
|---|---|---|---|
| Standard | 100,000 | 1.00 | $10 |
| Mini | 10,000 | 0.10 | $1 |
| Micro | 1,000 | 0.01 | $0.10 |
| Nano | 100 | 0.001 | $0.01 |
The Golden Rule of Trading:
Never risk more than 1-2% of your account on a single trade.
Forex Example:
Account: $5,000 | Risk: 1% ($50) | Stop-Loss: 25 pips → Need pip value of $2 → Trade 0.2 standard lots.
4. Common Mistakes by Beginners and How to Avoid Them
Remember: Forex = pips, Futures = ticks, Indices = points. A 10-pip move is NOT the same as a 10-point move!
If you open a trade without knowing what a 1-point move is worth, you are trading blindly. Always know the pip/tick value before starting a trade.
A beginner with a $500 account trading a standard lot risks $10 per pip. A 50-pip move will wipe out their account. Always match your lot size to your account balance.
It is impossible to properly calculate your risk without a defined stop-loss level. Define your stop-loss first, then position size.
5. Quick-Reference Cheat Sheet
| Lot Size | Units | Pip Value |
|---|---|---|
| Standard | 100,000 | $10 |
| Mini | 10,000 | $1 |
| Micro | 1,000 | $0.10 |
| Nano | 100 | $0.01 |
| Contract | Tick Size | Tick Value | Point Value |
|---|---|---|---|
| YM E-Mini Dow | 1.0 | $5 | $5 |
| NQ E-Mini Nasdaq | 0.25 | $5 | $20 |
| MNQ Micro Nasdaq | 0.25 | $0.50 | $2 |
| ES E-Mini S&P | 0.25 | $12.50 | $50 |
| CL Crude Oil | 0.01 | $10 | $1000 |
Conclusion: Know the Language, Trade with Confidence
Having a solid grasp of these terms is not just theory or academic. This is the foundation of all risk management in trading. It is the absolute difference between a gambler and a strategist.
Your final action plan:
- Open a demo account with your broker
- Practice opening trades in Forex and Futures markets
- Use a calculator to figure out position size before each demo trade
- Journal your calculations and results
Among verified global brokers, XM consistently ranks as a premier choice for traders of all experience levels.