Spot Forex is traditionally traded in lots also referred to as contracts. The standard sizefor a lot is $100,000. In the last few years a mini lot size has been introduced of $10,000and this again may change in the years to come. As we mentioned on the previous pagecurrencies are measured in pips, which is the smallest increment of that currency. To takeadvantage of these tiny increments it is desirable to trade large amounts of a particularcurrency in order to see any significant profit or loss. We shall cover leverage later but forthe time being let's assume we will be using $100,000 lot size. We will now recalculatesome examples to see how it effects the pip value.USD/JPY at an exchange rate of 116.73(.01/116.73) X $100,000 = $8.56 per pipUSD/CHF at an exchange rate of 1.4840(0.0001/1.4840) X $100,000 = $6.73 per pipIn cases where the US Dollar is not quoted first the formula is slightly different.EUR/USD at an exchange rate of 0.9887(0.0001/ 0.9887) X EUR 100,000 = EUR 10.11 to get back to US Dollars we add afurther stepEUR 10.11 X Exchange rate which looks like EUR 10.11 X 0.9887 = $9.9957 roundedup will be $10 per pip.GBP/USD at an exchange rate of 1.5506(0.0001/1.5506) X GBP 100,000 = GBP 6.44 to get back to US Dollars we add a furtherstepGBP 6.44 X Exchange rate which looks like GBP 6.44 X 1.5506 = $9.9858864 roundedup will be $10 per pip.As we said earlier your broker may have a different convention for calculating pip value relative to lot size but however they do it they will be able to tell you what the pip valuefor the currency you are trading is at that particular time. Remember that as the marketmoves so will the pip value depending on what currency you trade.So now we know how to calculate pip value lets have a look at how you work out yourprofit or loss. Let's assume you want to buy US Dollars and Sell Japanese Yen. The rateyou are quoted is 116.70/116.75 because you are buying the US you will be working onthe116.75, the rate at which traders are prepared to sell. So you buy 1 lot of $100,000 at116.75. A few hours later the price moves to 116.95 and you decide to close your trade.You ask for a new quote and are quoted 116.95/117.00 as you are now closing your tradeand you initially bought to enter the trade you now sell in order to close the trade and youtake 116.95 the price traders are prepared to buy at. The difference between 116.75 and116.95 is .20 or 20 pips. Using our formula from before, we now have (.01/116.95) X$100,000 = $8.55 per pip X 20 pips =$171In the case of the EUR/USD you decide to sell the EUR and are quoted 0.9885/0.9890you take 0.9885. Now don't get confused here. Remember you are now selling and youneed a buyer. The buyer is biding 0.9885 and that is what you take. A few hours later theEUR moves to 0.9805 and you ask for a quote. You are quoted 0.9805/0.9810 and youtake 0.9810. You originally sold EUR to open the trade and now to close the trade youmust buy back your position. In order to buy back your position you take the price tradersare prepared to sell at which is 0.9810. The difference between 0.9810 and 0.9885 is0.0075 or 75 pips. Using the formula from before, we now have (.0001/0.9810) X EUR100,000 = EUR10.19: EUR 10.19 X Exchange rate 0.9810 =$9.99($10) so 75 X $10 =$750.To reiterate what has gone before, when you enter or exit a trade at some point your aresubject to the spread in the bid/offer quote. As a rule of thumb when you buy a currencyyou will use the offer price and when you sell you will use the bid price. So when you buya currency you pay the spread as you enter the trade but not as you exit and when you sella currency you pay no spread when you enter but only when you exit.