Trading Basics

Lot Sizes, Pips, and Ticks: The Language of Position Sizing

Before you can size a position correctly, you need to understand the unit of measurement for each market.

Key rules

  1. Forex: standard lot = 100,000 units; $10/pip for EUR/USD pairs
  2. Futures: know the tick size and tick value for every contract you trade
  3. MES/MNQ micro futures are 1/10th the size of standard contracts — better for beginners
  4. Always convert position size to dollar exposure before entering any trade
  5. Never size by 'round numbers of contracts/shares' — size by dollar risk and stop distance

Every market measures positions and price movement differently. Getting this wrong leads to massively under- or over-sized positions.

**Forex: Pips and Lots** A pip (percentage in point) is the smallest standard price move in most currency pairs — 0.0001 for EUR/USD. A standard lot = 100,000 units of base currency. A mini lot = 10,000 units. A micro lot = 1,000 units.

For EUR/USD: one standard lot moves $10 per pip. One mini lot = $1/pip. One micro lot = $0.10/pip. If you buy 0.1 lots of EUR/USD and it moves 50 pips in your favour, your profit is $50.

**Stocks: Shares** Position size is simply the number of shares. If a stock is at $50 and you buy 100 shares, your total exposure is $5,000. A $1 move in the stock = $100 profit or loss.

**Futures: Contracts and Ticks** Each futures contract has a tick size (minimum price move) and a tick value (dollar value of that tick). ES (E-mini S&P 500): tick size = 0.25 points, tick value = $12.50. One ES contract controls a $200k+ position. MES (Micro E-mini S&P 500): tick value = $1.25 — 10x smaller, ideal for beginners.

**Crypto: Contracts and Satoshis** Spot crypto is measured in units of the coin. Perpetual futures on exchanges use either coin-margined or USDT-margined contracts with a specified contract size. Always check the specific contract specification on the exchange.

**Why This Matters** Misunderstanding position sizing units is one of the most common — and costly — beginner mistakes. Always calculate your dollar risk before entering, regardless of how the instrument measures position size.

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