Prerequisite: Reading a currency pair
Learning objective
Convert a price change into pips and a cash result using explicit contract assumptions.
A pip is a quoted convention, while a tick is the minimum permitted price increment for the product. Many non-JPY currency pairs use a 0.0001 pip; many JPY pairs use 0.01. A displayed extra decimal may be a fraction of a pip. Verify the symbol specification instead of counting screen digits.
For a simple linear FX exposure, price change multiplied by base-currency units gives gross profit or loss in quote currency. A long position uses exit minus entry; a short position uses entry minus exit. This simplified model is not a universal formula for every CFD, future or option.
Lot labels describe contract quantities, not a fixed cash risk. For illustration, if a provider defines one lot as 100,000 base units, 0.10 lot means 10,000 units. Use the actual provider definition, convert quote-currency results into account currency and then include trading costs.
Worked example
Hypothetical long EUR/USD: 10,000 EUR units, entry 1.1000 and exit 1.1025. Change = 0.0025 = 25 pips under a 0.0001 convention. Gross result = 10,000 × 0.0025 = 25 USD before costs.
Common mistakes
Do not apply EUR/USD pip values to gold or assume a lot is the same across providers.
Practice
Repeat the example for a short position from 1.1025 to 1.1000, then calculate the loss if it instead exits at 1.1050.