How do pips and points differ?

A pip is the standard forex unit, usually the fourth decimal; a point depends on the platform, and on many it's ten times smaller than a pip.

One standard forex lot is 100,000 units of the base currency; there are also mini lots at 0.1 and micro lots at 0.01.

Why know the value per price step?

Because it's the only way to turn a stop distance into real money, and from there size the position for the right risk.

Price and Size Units (Pip, Point, Tick, Lot)

What price and size units are

These are the smallest units for measuring a trade: how much the price ticks, and how much you put in. It sounds dry, but without grasping it you can't work out exactly how much money you make or lose per price step.

Why it matters

For the same "price moved 10 units," the actual money differs greatly depending on your size and the value of each unit. Without this, your risk percentage is only theory — you can't convert it into real money.

The main units

Pip: the standard price-change unit in forex, usually the fourth decimal of the rate. For example, EUR/USD moving from 1.1000 to 1.1001 is a 1-pip rise.
Point: a general term for a price step; in stocks it's often one price unit, while on many platforms a point is a fraction of a pip.
Tick: the smallest price increment a product is allowed to move. Each derivative has its own tick size and tick value.
Lot: the standard size unit. In forex, one standard lot is 100,000 units of the base currency, with smaller mini and micro lots.
Contract size: the quantity one derivative contract represents, used to compute the position's real value.

How to apply it

Before entering, know what each price step is worth in money at your intended size. Then your stop-loss distance in pips or points converts into a concrete amount, and that amount is what you weigh against your risk limit.

A concrete example

You enter 1 standard lot of EUR/USD, where each pip is worth about $10. Setting a stop 20 pips away means risking about $200. If you enter only 0.1 lot, each pip is worth about $1, and that same 20-pip stop risks only about $20. Same price distance, ten times the money difference, purely from size.

Common mistakes

Entering a trade without knowing what each pip or point is worth.
Confusing pips and points on a platform, placing a stop ten times too far or too close.
Choosing lot size by feel rather than working back from a risk limit.
Forgetting that pip value changes with the currency pair and account type.

FAQ

How do pips and points differ? A pip is the standard forex unit, usually the fourth decimal; a point depends on the platform, and on many it's ten times smaller than a pip.
How much is one lot? One standard forex lot is 100,000 units of the base currency; there are also mini lots at 0.1 and micro lots at 0.01.
Why know the value per price step? Because it's the only way to turn a stop distance into real money, and from there size the position for the right risk.

Checklist

☐ Do I know what each pip or point is worth at this size?
☐ How much money is my stop distance?
☐ Is that amount within my risk limit?