Core Trading Units Explained: Pips, Spreads, Slippage & More

Unpack pips, spreads, slippage, commissions, and liquidity to help you interpret prices, assess costs, and trade with confidence.

Before you place your first trade, get comfortable with the core trading units that govern pricing and costs: pips, spreads, commissions, slippage, and liquidity. These terms determine how far prices move, what you pay to trade, and how your P&L is calculated—whether you’re in forex (FX) or other markets.

What is a pip in forex trading?

A pip (percentage in point) is the standard price increment used to measure movement in most FX pairs. For pairs quoted to four decimals, 1 pip = 0.0001. Example: EUR/USD 1.1000 → 1.1001 = 1 pip. Many brokers also display pipettes (fractional pips): an extra decimal place, so 0.00001 = 0.1 pip.

Why it matters: pips are the unit traders use to measure gains, losses, and spreads. Depending on your lot size, the value of each pip can range from a few cents to several dollars.

Pip value & lot size (quick guide):

Standard lot (100,000 units): ~$10 per pip when USD is the quote currency (e.g., EUR/USD).
Mini lot (10,000): ~$1 per pip.
Micro lot (1,000): ~$0.10 per pip.
(Actual pip value varies with pair and account currency—your platform calculates it in real time.)

Special Case: JPY Pairs (Different Pip Size)

Why JPY is different?
JPY pairs are typically quoted to two decimals, so 1 pip = 0.01 (not 0.0001). Example: USD/JPY 145.20 → 145.21 = 1 pip. Many brokers also show pipettes on JPY pairs to a third decimal, where 0.001 = 0.1 pip. This convention stems from the yen’s lower unit value, making one-hundredth of a yen a meaningful tick in FX quoting.

Practical tip: If you switch between EUR/USD and USD/JPY, remember you’re counting pips on different decimal places (4th vs 2nd). Some exotic or less common pairs may also use non-standard formats—always check the symbol’s contract specs in your platform.

What Is the Spread?

The spread is the difference between the bid and ask prices, your built-in transaction cost.

Example: EUR/USD bid 1.1000 / ask 1.1002 → spread = 2 pips.

Why it matters
Tighter spreads reduce your break-even distance, which is crucial for scalpers and short-term traders. Spreads usually tighten in high-liquidity sessions and can widen during news releases or off-hours.

Commissions & Fees

How you’re charged
You usually pay in two ways: the spread (the tiny gap between buy and sell) and, on some account types (often ECN), an extra commission. When a broker says “$7 per round turn per standard lot”, that means $3.50 to open + $3.50 to close a standard lot (100,000 units). For smaller sizes it scales down (e.g., $0.70 for a mini lot, $0.07 for a micro lot).

Why tight-spread + commission can be cheaper
Your all-in trading cost = (spread in pips × pip value) + commission.

A broker with a very tight spread + small commission can cost less than a “commission-free” broker with a wider spread.

Quick example (EUR/USD, standard lot):

Broker A (no commission): spread 1.2 pips → cost ≈ 1.2 × $10 = $12.
Broker B (ECN): spread 0.2 pips (0.2 × $10 = $2) + $7 commission → $9 total.
In this case, Broker B is cheaper even though it charges commission.

Slippage (Positive & Negative)

Slippage is when your order fills at a different price than requested—common in fast markets or thin liquidity.

Example: aiming to buy at 1.1000 but filling at 1.1003 = +3 pips (negative for buys). Slippage can also be positive (a better fill).

How to manage it
Use limit orders to cap your entry price, avoid low-liquidity times, and be cautious around news events.

Liquidity

Liquidity is how easy it is to buy or sell at (or very near) the quoted price. In a highly liquid market there are lots of buyers and sellers queued up, so your order gets filled quickly with tight spreads and little slippage. In a thin market, there are fewer orders available, so the spread widens, fills can be partial or delayed, and price may jump to the next available level (slippage).

Effects you’ll notice in practice

Spread: High liquidity → tighter spreads; low liquidity → wider spreads.
Slippage: High liquidity → orders fill near your price; low liquidity → fills can slip several pips/ticks.
Execution speed & depth: High liquidity → fast fills, more size available at each price; low liquidity → smaller sizes, more re-quotes/partials.
Gap risk: Thin conditions (open/close, weekend, off-hours) raise the chance of gaps.

Majors vs exotics
Major FX pairs (e.g., EUR/USD, GBP/USD, USD/JPY) are usually the most liquid—great for tight spreads and consistent fills. Exotic pairs (e.g., USD/TRY, USD/ZAR) and minor crosses can be much less liquid, so expect wider spreads and more slippage, especially outside peak hours.

Time-of-day drivers
Liquidity in FX follows the big trading sessions:

Tokyo/Asia session: early liquidity, often calmer.
London session: typically the most liquid.
New York session: very active, especially during the London–New York overlap.
Rule of thumb (UK time): London 08:00–17:00, New York 13:00–22:00, with the overlap ~13:00–17:00 offering the best liquidity for majors.

News & calendar effects
Right before major releases (e.g., NFP, CPI, rate decisions), liquidity can thin and spreads can widen as participants step back. Right after the release, volume surges but prices can move violently—great liquidity doesn’t prevent slippage if price is sprinting.

Other drivers

Market participation/holidays: Fewer active players = thinner books.
Volatility regime: Extreme risk-on/off can pull liquidity or concentrate it.
Broker/liquidity-provider mix: Different brokers aggregate different feeds; quality varies.

How to adapt (quick checklist)

Check the spread before you click; if it’s unusually wide, size down or wait.
Prefer limit orders when conditions are thin; avoid large market orders.
Trade major pairs during London/NY hours for the best execution.
Around news, either stand aside or expect slippage; use hard stops and smaller size.
For exotics or off-hours, reduce position size and be conservative with stops/targets.

Putting It All Together

The costs
Costs are the combination of spread + commission + slippage (plus any overnight financing/swap). Liquidity conditions influence both spread and slippage, while the unit of movement (pips for FX, tick size for non-FX) determines how price changes translate into real money.

Summary notes:

FX majors: 1 pip = 0.0001; JPY pairs: 1 pip = 0.01.
Pipettes: fractional pips (extra decimal).
Non-FX: use tick size and tick value instead of pips.
Compare all-in costs and check contract specs for every symbol you trade.

What is a pip in forex?

A pip is the standard unit of price movement in FX. On most pairs quoted to 4 decimals, 1 pip = 0.0001 (EUR/USD 1.1000 → 1.1001 = 1 pip). Many platforms also show pipettes (fractional pips): 0.00001 = 0.1 pip.

Why is the pip different on JPY pairs?

JPY pairs are usually quoted to 2 decimals, so 1 pip = 0.01 (USD/JPY 145.20 → 145.21 = 1 pip). Some brokers show pipettes to three decimals (0.001 = 0.1 pip).

How do I calculate pip value?

Rule of thumb: Pip Value (quote currency) = Lot Size × Pip Size. EUR/USD (standard lot 100,000): 100,000 × 0.0001 = $10 per pip. USD/JPY (price 145.20): 100,000 × 0.01 = ¥1,000 ≈ ¥1,000 ÷ 145.20 = $6.89 per pip. The price of 145.20 is the USD/JPY exchange rate and it changes constantly. For other pairs or account currencies, your platform will calculate it automatically.

What’s the spread in trading and why does it matter?

The spread is the gap between bid and ask—your built-in cost to trade. Tighter spreads mean you reach break-even sooner; wider spreads increase your cost per trade, especially for short-term strategies.

Spread vs commission: which account is cheaper?

It depends on the all-in cost: (spread in pips × pip value) + commission. A tight-spread + small commission (e.g., ECN) can be cheaper than a wider, “commission-free” spread. Compare both on the same symbol and size.

What is slippage and can it be positive?

Slippage is when your order fills at a different price than requested due to speed/liquidity. It can be negative (worse price) or positive (better price). To reduce negative slippage, avoid low-liquidity times and use limit orders instead of market orders.

What is liquidity in forex?

Liquidity is how easily you can transact without moving the price. Majors like EUR/USD, GBP/USD, USD/JPY are highly liquid → tighter spreads and less slippage. Exotics or off-hours often mean wider spreads and more slippage.

When are spreads usually tightest—and when do they widen?

Spreads are typically tightest during London and New York hours, especially the London–NY overlap. They often widen around major news, on holidays, and during late/early session trading.

Do non-FX markets use pips? What is tick size?

Non-FX instruments (futures, indices, stocks, commodities, crypto) use tick size—the smallest allowed price step for that symbol. Example: E-mini S&P 500 (ES) tick size 0.25 points with a $50/point multiplier → $12.50 per tick. Tick value = Multiplier × Tick Size.

Where do I find pip size, tick size, and costs for my symbol?

Open your platform’s contract/specs or symbol information. It lists pip or tick size, trading hours, margin, and (if applicable) commission. Always check these before sizing a trade.

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