Welcome back. Last time, we watched EUR/USD climb from 1.0850 to 1.0900 and I promised you a question with a dollar sign attached. How much money did the move make?

The honest answer is “depends.” I know. Nobody likes a professor who says “depends.” So today, we’ll replace “depends” with a number.

Learning to trade feels a lot like moving to a new country. Before you order dinner, you need a few words of the local language. In trading, four of those words show up on every single trade: pips, lots, spreads and swaps. Skip them, and you’ll place trades without knowing what they cost or what they’re worth.
By the end of this lesson, you’ll know how to measure a price move, size a position, spot the hidden cost of every trade, and understand why your account balance changes overnight while you sleep. And yes, you’ll finally learn why the airport gave you such a bad rate.

Grab a calculator. The maths today is friendly, I promise.

Part 1: Pips, the Ruler of the Forex Market

A pip is the unit traders use to measure price movement. The name comes from “percentage in point,” though most traders swear the letters mean “please, in profit.”

For most currency pairs, one pip equals 0.0001, the fourth decimal place. So when EUR/USD moves from 1.0850 to 1.0851, the pair has moved one pip.

Quick check. EUR/USD moves from 1.0850 to 1.0900. How many pips is the move?

Take 1.0900, subtract 1.0850, and you get 0.0050. Divide by 0.0001, and the answer is 50 pips. If you got 50, well done. If you got 5,000, please put the calculator down slowly and read the paragraph again.

Now for the exception every beginner trips over. Pairs with the Japanese yen use two decimal places, so one pip equals 0.01. When USD/JPY moves from 150.00 to 150.50, the move equals 50 pips. Why? One yen is worth far less than one dollar, so yen prices need fewer decimals to show a meaningful move. You’ll also see a fifth decimal on most platforms, such as 1.08503. The tiny final digit is a pipette, or one tenth of a pip. Brokers quote pipettes to show tighter prices. Ignore them for now.

Gold, oil and stock indices use their own point systems, and these vary between brokers. Always check the contract specifications on your platform before you trade them. 

Chapter 3 covers these markets in more detail.

Part 2: Lots, or How Big Is Your Trade?

A pip tells you how far the price moved. A lot tells you how much of the currency you traded. Put the two together, and you get money. Forex trades come in standard sizes:

Standard lot: 100,000 units of the base currency Mini lot: 10,000 units, or 0.1 lots Micro lot: 1,000 units, or 0.01 lots

On MetaTrader 5, you type the size as a decimal. Typing 1.00 means one standard lot. Typing 0.10 means one mini lot. Typing 0.01 means one micro lot. One misplaced decimal here turns a small practice trade into a big, scary one. Double-check the box every time.

Pip value: what one pip is worth

For any pair where the US dollar is the second currency, such as EUR/USD or GBP/USD, the pip value is easy to remember:
1 standard lot: $10 per pip
1 mini lot: $1 per pip
1 micro lot: $0.10 per pip

Here’s why. One standard lot is 100,000 euros. One pip is 0.0001. Multiply the two, and you get 10. Since the price is quoted in dollars, the answer is $10.

The answer I promised you.

Back to our move. EUR/USD rose 50 pips. On a $10,000 account, what did the move make?

With 1 standard lot: 50 pips × $10 = $500, or 5% of your account
With 1 mini lot: 50 pips × $1 = $50, or 0.5% of your account
With 1 micro lot: 50 pips × $0.10 = $5, or 0.05% of your account

Same chart. Same 50 pips. Three completely different outcomes. The price move didn’t change. Your position size did.
Now flip the move around. Suppose EUR/USD fell 50 pips instead. The standard lot trader loses $500 on a single trade. Would you want to explain a 5% loss to yourself before lunch? Neither would I.

What about the yen pairs?

When the dollar sits first, as in USD/JPY, the pip value moves with the exchange rate. The formula looks like this:

Pip value = (pip size ÷ exchange rate) × units

At USD/JPY 150.00, one standard lot works out to (0.01 ÷ 150) × 100,000 = about $6.67 per pip.

Most platforms calculate this for you. Learn the logic anyway, because a tool you don’t understand becomes a tool you misuse.

Part 3: Spreads, the Price of Admission

Open any trading platform, and you’ll see two prices for every pair. The bid is the price you sell at. The ask is the price you buy at. The ask always sits a little higher than the bid. The gap between the two is the spread.

Suppose EUR/USD shows 1.0850 bid and 1.0851 ask. The spread is 1 pip. If you buy 1 standard lot, you pay 1.0851. If you close the trade a second later, you sell at 1.0850. You’ve lost 1 pip, or $10, without the market moving at all.

So every trade starts slightly in the red. The market needs to move past the spread before you make a single cent. This is the main way many brokers earn money, and some add a separate commission on top.

Now, the airport mystery, solved

Remember changing money at the airport in Chapter 1? Suppose the real EUR/USD rate on the day was 1.0850. The currency booth sold you euros at 1.1500 and offered to buy them back at 1.0200. Do the maths. 1.1500 minus 1.0200 equals 0.1300. The booth’s spread was 1,300 pips.

A typical EUR/USD spread on a trading platform is often around 1 pip during busy hours. The booth charged over a thousand times more. The friendly smile at the counter was not free.

What triggers a wider Spread in the Market?

Spreads move around during the day. Watch for three situations:

• Major news releases, such as Non-Farm Payrolls or interest rate decisions. Liquidity providers pull back for a few seconds, and spreads jump.
• Quiet hours, especially around the daily rollover at 5 p.m. New York time, when fewer banks are trading.
• Exotic pairs, such as USD/TRY, which trade less often and carry wider spreads all day.

A strategy aiming for 5 pips of profit falls apart fast when the spread widens to 4 pips. Always know the spread before you click.

Part 4: Swaps, or Why Your Balance Changes While You Sleep

You open a trade, go to bed, and wake up to find a small charge on your account. The price didn’t move against you. So what happened?
You met the swap.

A swap, also called rollover or overnight financing, is the interest you pay or receive for holding a position past the daily cutoff, usually 5 p.m. New York time. Every currency carries an interest rate set by its central bank. When you buy a pair, you’re effectively borrowing one currency to hold the other. If the currency you hold pays a higher rate than the one you borrowed, you might earn a small credit. If the rate is lower, you pay. In practice, brokers add a markup, so many positions pay a swap in both directions.

Two details catch beginners out:

Triple swap day. Most forex positions get charged three nights of swap on Wednesday, to cover the weekend settlement. Hold a trade through Wednesday night and you’ll see a bigger charge than usual. Swaps add up. Suppose your swap is minus $7 per night on 1 standard lot. Hold the trade for 10 nights, and you’ve paid $70 before counting any profit or loss.

Scalpers who close trades within minutes never see a swap. Swing traders who hold for days or weeks need to include swaps in every plan. You’ll find the swap rates for each symbol in your platform’s contract specifications. If you trade with a prop firm, read the rules on holding trades overnight and over the weekend before you do either.

One Trade, Four Numbers

Let’s walk through a complete trade on a $10,000 account. EUR/USD shows 1.0850 bid and 1.0851 ask. The spread is 1 pip.
You buy 2 mini lots, or 0.20 lots, at 1.0851. Each pip is worth $2.
You hold the trade for two nights. The swap is minus $0.60 per mini lot per night, so you pay $2.40 in total. The bid reaches 1.0901. You close the trade.

Your profit is 50 pips × $2 = $100. Subtract the $2.40 swap, and you keep $97.60.

Where did the spread go? You paid the spread when you entered at the ask price of 1.0851 instead of 1.0850. The spread cost you 1 pip, or $2, and the maths above already includes the cost.

Four numbers, zero surprises. Professionals run this check before every click.

Why This Matters in a Prop Challenge

Let’s connect this to a Moneta Funded account. On a $10,000 Instant Funding account, the daily loss limit is 3%, or $300.

Trade 1 standard lot on EUR/USD, and each pip is worth $10. A 30 pip move against you uses up the entire daily limit. EUR/USD moves 30 pips in minutes on an NFP Friday. Trade 1 mini lot instead, and each pip is worth $1. The same $300 limit now covers 300 pips.

Same account. Same rule. Your lot size decides whether one bad move ends your day or barely dents your balance. We’ll build a full position sizing method in the risk module.

Common Beginner Mistakes to Avoid

• Typing 1.00 lots when you meant 0.10. Always read the volume box twice.
• Forgetting the yen pairs use 0.01 as one pip.
• Ignoring the spread on short-term trades.
• Holding trades through Wednesday night without checking the swap.
• Measuring success in pips alone. Fifty pips on a micro lot is $5. Fifty pips on a standard lot is $500. Always convert pips into dollars and into a percentage of your account.

Up Next: Chapter 3

Stay tuned, because the next chapter takes you beyond EUR/USD. We’ll look at the major currency pairs, gold, stock indices and crypto CFDs, and why each one behaves in its own way. Some move quietly. Some swing hundreds of dollars before your coffee cools. Knowing the personality of each market helps you pick the right one for your style and set your position size with confidence. See you in class.

Disclaimer: This content is for educational purposes only and does not constitute financial advice. Trading forex and CFDs involves significant risk of loss. Figures used in examples are for illustration only. Spreads, swaps and contract specifications vary by instrument and account. Moneta Funded accounts use simulated capital for evaluation purposes.