# "More On Market Mechanics"

Spot Forex is traditionally traded in lots also referred to as contracts. The standard size for a lot is \$100,000. In the last few years a mini lot size has been introduced of \$10,000 and this again may change in the years to come. As we mentioned on the previous page currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these tiny increments it is desirable to trade large amounts of a particular currency in order to see any significant profit or loss. We shall cover leverage later but for the time being let's assume we will be using \$100,000 lot size. We will now recalculate some examples to see how it effects the pip value.

USD/JPY at an exchange rate of 116.73

(.01/116.73) X \$100,000 = \$8.56 per pip

USD/CHF at an exchange rate of 1.4840

(0.0001/1.4840) X \$100,000 = \$6.73 per pip

In cases where the US Dollar is not quoted first the formula is slightly different.

EUR/USD at an exchange rate of 0.9887

(0.0001/ 0.9887) X EUR 100,000 = EUR 10.11 to get back to US Dollars we add a further step

EUR 10.11 X Exchange rate which looks like EUR 10.11 X 0.9887 = \$9.9957 rounded up will be \$10 per pip.

GBP/USD at an exchange rate of 1.5506

(0.0001/1.5506) X GBP 100,000 = GBP 6.44 to get back to US Dollars we add a further step

GBP 6.44 X Exchange rate which looks like GBP 6.44 X 1.5506 = \$9.9858864 rounded up will be \$10 per pip

As mentioned earlier your broker may have a different convention for calculating pip value relative to lot size, however they do it, they will be able to tell you what the pip value for the currency you are trading is at that particular time. Remember that as the market moves so will the pip value depending on what currency you trade.