Small units in Forex: the difference between a micro lot and a pip
Getting familiar with the terminology, strategy and tricks of Forex trading is just like learning a new sport or a new language – it can take a bit of time before you feel comfortable with the basics. With time, practice and concerted effort, you will be well on your way to knowing how to manage the trading market and tilt the odds in your favour.
Forex trading involves considerable strategy, know-how and expertise, and it is essential to have a solid foundation. One of the best ways to become more knowledgeable about Forex trading is to get to know the terminology. Terms like “micro lots” and “pip” are key to foundational knowledge of the market.
What is a micro lot in Forex?
In a Forex trade, a micro lot represents one thousand units of the base currency. Generally speaking, it is one of the smallest blocks of currencies available for trading in Forex and is typically used by fledgling traders who want to try out their wings without incurring substantial losses. To get a more detailed view on the topic, the website https://www.vantagemarkets.com/en-au/academy/micro-lots/ offers valuable information on micro lots and everything you need to know about lot sizes, presenting a clear overview of the matter along with a wide range of trading tools and tips.
To give concrete examples of a micro lot, one micro lot of Euros is equal to 1,000 EUR, and a micro lot of Japanese yen equals 1,000 JPY. Even though the amount is relatively small, a trader can trade up to as many micro lots as desired. In this way, micro lots do not restrict the amount being traded but are advantageous because they enable a more fine-tuned specification of how much a trader wants to deal with.
Considering lot sizes in Forex trading, the standard size equals one hundred thousand units of the base currency. Instead of being traded in singular units, like one dollar, one peso or one yen, currencies are traded in lots for convenience. The four common lot sizes are standard, mini, micro and the relatively rare nano.
What is a pip in Forex?
Another term for diminutives is a pip. While a micro lot is the typically smallest block of currency, a pip is the smallest unit of measurement that indicates the difference in a pair of currencies. Instead of being a specific amount like a micro lot, a pip reflects a percentage.
This percentage differs depending on the currency in question. For example, when talking about United States dollars, a pip is equal to one-hundredth of one percent, also shown as the decimal .0001.
