Definition: what “micro lot” means
A micro lot is a forex position size that is smaller than a standard lot. In common forex lot sizing, a standard lot represents 100,000 units of the base currency, and a micro lot represents 0.01 standard lot, which equals 1,000 units of the base currency. Because forex pricing uses the base currency, the monetary impact of a price move depends on how the pair’s currencies map to your account currency.
A worked example means you choose numbers and assumptions for each calculation step—especially pip value and account currency—then you compute the result from the stated assumptions.
Mechanics: how the worked example is calculated
To illustrate mechanics without real-time prices, we use a simplified, checkable setup.
Assumptions used in this example
- We trade a pair quoted to 5 decimal places, where the pip size is 0.00001.
- The pip movement we test is 10 pips.
- The entry price is 1.10000 and the exit price is 1.10100 (a rise of 0.00100, which equals 10 pips with the stated pip size).
- We use micro lot size = 0.01 standard lot = 1,000 base currency units.
- We assume the account currency equals the quote currency for the pair, so pip value can be expressed in quote currency in a straightforward way.
- We ignore spreads, commissions, slippage, and any margin effects (since those require provider-specific data).
Step-by-step computation
- Total price change:
- Exit − entry = 1.10100 − 1.10000 = 0.00100.
- Convert to pips:
- With pip size 0.00001, pips = 0.00100 / 0.00001 = 100 pips if using 10-pip equivalence incorrectly.
Because the pip mapping must be consistent, we correct the plan:
- If 10 pips should equal 0.00100, then pip size would need to be 0.00010, which is not typical for 5-decimal quoting. Therefore, we restate the scenario using consistent units.
Corrected worked scenario (consistent pip definition)
- Assume pip size = 0.00001.
- Choose a move of 10 pips: price change = 10 × 0.00001 = 0.00010.
- Entry = 1.10000.
- Exit = 1.10010.
Now compute:
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Total price change: 1.10010 − 1.10000 = 0.00010.
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Pips: 0.00010 / 0.00001 = 10 pips.
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Pip value per micro lot (with account currency = quote currency):
- For a pair where quote currency is the account currency, a common approximation is:
- pip value = (pip size) × (units of base currency).
- Units for a micro lot: 1,000 base currency units.
- pip value = 0.00001 × 1,000 = 0.00001 × 1,000 = 0.01 quote-currency units per pip.
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Profit (before costs) for a 10-pip rise:
- Profit = 10 pips × 0.01 per pip = 0.10 (in quote currency).
That is the worked numerical example: with the stated assumptions, a 10-pip favorable move on a micro lot yields 0.10 quote-currency units before spreads/fees.
Evidence or example cross-check: micro lot vs standard lot
A second check that does not rely on market data is to scale position size.
Assumptions
- Same pair, same pip size, same 10-pip move.
- Same assumption that pip value scales linearly with lot size.
Comparison
- If a standard lot is 100,000 base units and a micro lot is 1,000 base units, then micro is 100× smaller.
- Therefore pip value on a micro lot should be 100× smaller than on a standard lot.
- In the example, micro pip value was 0.01 quote units per pip, so standard-lot pip value would be 1.00 quote unit per pip under the same simplified assumptions.
This cross-check helps you verify that your arithmetic is consistent, independent of any live spreads or execution.
Limitations and risks (material failure modes)
A worked example is only as reliable as its assumptions. Key limitations include:
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Pip size conventions vary by quote format
- Some pairs use 4 decimals, others 5; pip definitions differ across providers. If pip size is wrong, the pip count and pip value both change.
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Pip value may not match “quote currency” in all account setups
- If your account currency is not the quote currency, converting pip value requires additional exchange-rate assumptions. That conversion can materially change the numeric result.