Lesson T11.5 · 5 of 6 · Trading styles and instruments
Forex for traders: pips, lots, leverage and rollover, with worked sums
In forex, gains are measured in pips: on €100,000 of EUR/USD, one pip is worth $10. You pay the spread on every trade and rollover for every night. In the EU, retail leverage on currencies is capped at 30:1 for major pairs and 20:1 for the rest. Regulators’ studies show that most accounts lose money.
Terms in this lesson
- Exchange rate
- How much of one currency you get for another, such as dollars for a euro.
- Leverage
- You invest more than you have, with money borrowed from your broker.
- Bid-ask spread
- The gap between the price you can sell at and the price you can buy at, at the same moment.
How the currency market works for a trader: the sessions
How to read a quote and what a pip is are covered in the lesson on the currency market. Here we move on to trading. According to the NFA, the self-regulatory body for US futures markets, the currency market operates 24 hours a day. It is not an exchange: trades are made off-exchange, through dealers.
The figures come from the latest Bank for International Settlements survey, of April 2025, by the location of dealers’ sales desks. For a trader, the hours when the big centres are open matter. The CFTC, the US derivatives regulator, notes about round-the-clock trading that hours with fewer participants can bring lower liquidity, higher volatility and wider spreads.
The rest of this lesson is in the subscription
The subscription unlocks every chapter of Intermediate, Trading school, Investor psychology and Advanced, with their exercises and unlimited reviews.
Create a free accountWhat a pip is worth on a lot: the calculation
Definition
What is a pip worth?
The pip size × the number of units, in the second currency of the pair.
Platforms usually call a position of 100,000 units of the base currency (the first in the pair) a lot. On EUR/USD the pip is 0.0001, so on one lot it is worth $10. On USD/JPY the pip is 0.01 yen, so on $100,000 it is worth ¥1,000; at 150 yen to the dollar (an example), about $6.67. The NFA gives a similar example: buy €100,000 at 1.2178, sell at 1.2188, and you make $100.
One lot = €100,000; 0.1 lots = €10,000.
The spread is measured in pips too. In the NFA example, a quote of 1.2170/1.2178 means you can sell a euro for $1.2170 and buy one for $1.2178: an 8-pip spread, or $80 on one lot, paid on every round trip.
Leverage on currencies: the European and US limits
When you trade currencies through CFDs in the EU, the limits from the CFD lesson apply: 30:1 on major pairs, meaning any two of the US dollar, euro, yen, pound sterling, Canadian dollar and Swiss franc, and 20:1 on every other pair. The FCA’s permanent UK rules of 2019 set leverage between 30:1 and 2:1. In the US, the retail forex rules the CFTC adopted in 2010 require a minimum deposit, so leverage of at most 50:1 on major currencies and 20:1 on the rest.
Why most retail forex traders lose money: what regulators say
The AMF study
Retail forex and CFD clients in France, 2009-2012
The French markets regulator (AMF) studied 14,799 active retail investors at a handful of specialist firms authorised in France, across forex, binary options and CFDs, over four years. More than 89% lost money. The average result was a loss of almost €10,900 per client, and the median a loss of €1,843. The 1,575 clients who made money gained €13.8 million between them.
Regulators give the same explanations: leverage and costs. The FCA saw firms offering CFDs with ever higher leverage, resulting in high proportions of consumers losing money. The NFA does the sum: at 100:1 leverage, a 1% move in the rate against you wipes out your whole deposit. Add the spread paid on every trade and rollover for every night. When ESMA brought in its limits in 2018, it reported, based on national regulators’ analyses, that 74-89% of retail CFD accounts, currencies included, typically lose money.
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: NFA, “Trading in the Retail Off-Exchange Foreign Currency Market: What Investors Need to Know” (24-hour market, spread, the €100,000 gain example, 100:1 leverage, rollover); BIS preliminary results of the April 2025 survey (30 September 2025); ESMA, March 2018 announcement and notice of 17 April 2019 (30:1 and 20:1, the list of major currencies, 74-89%); FCA press release of 1 July 2019; CFTC press release of 30 August 2010 (retail forex rules) and Morgan Lewis’s summary of the rules (2% and 5% deposits); CFTC advisory on round-the-clock trading (29 May 2026, as reported by CoinDesk); AMF, “La lettre de l’Observatoire de l’épargne”, No 10, October 2014. Rates, interest figures and sums are examples worked out in the lesson.