Pip Value and FX Position Sizing

Most major currency pairs are quoted to four decimal places, and a pip is a move in the last of those digits — 0.0001 for EURUSD, for example. Traders use pips as a common unit of size because it lets them talk about risk without constantly recalculating what a price move actually costs in real money; a "20 pip stop" means the same thing regardless of which direction the market moves.

Turning pips into dollars requires knowing the pip value, which depends on the position size and, for pairs not quoted directly against the dollar, the exchange rate itself. For a standard lot of 100,000 units in a pair quoted as USD per unit of the other currency (like EURUSD), one pip is worth approximately $10, because $100{,}000 \times 0.0001 = 10$.

Worked example

A trader wants to risk exactly $500 on a EURUSD trade with a 25-pip stop. First find the pip value per standard lot: $10. Then the position size in lots is $500 / (10 \times 25) = 2$ lots, i.e. 200,000 units — because 25 pips against a 2-lot position is $25 \times 10 \times 2 = 500$ dollars, matching the risk budget exactly.

For cross pairs like EURGBP or pairs where the dollar is the base currency (like USDJPY), the pip value must be converted through the current exchange rate rather than assumed to be a flat $10, since the quote currency isn't the dollar.