Forex costs: pips, lots, margin and overnight charges

Read the contract specification

A currency pair is quoted as one currency priced in another. Contract size, pip convention, minimum volume and volume step come from the selected instrument specification. Do not assume every symbol, metal or CFD uses the same pip size. Keep account currency separate from quote currency; converting a price movement into account money can require an exchange rate.

Convert pips into money

Once the account-currency pip value for one lot is known, multiply it by the number of lots. For an illustrative instrument worth $10 per pip at one lot, 0.20 lot is $2 per pip. A 50-pip move therefore changes the position by about $100 before costs. The $10 figure is an assumption, not a universal value for every forex pair or account currency.

Calculate the complete execution cost

A quoted spread is the difference between executable buy and sell prices. A raw-spread account may also charge commission on each side. Overnight financing depends on instrument, direction and rollover dates; a credit and a debit must use a consistent sign convention. Currency conversion and slippage are additional costs. Compare the same instrument, size and holding period when comparing two accounts.

Worked example: spread plus commission

Assume 0.20 lot, $10 pip value per full lot, a 1.2-pip spread and $7 round-trip commission per full lot. Spread cost is 0.20 × 10 × 1.2 = $2.40. Commission is 0.20 × 7 = $1.40. Total is $3.80 before financing and slippage. If financing costs $0.60 for the selected holding period, the scenario reaches $4.40. Replace every assumption with the actual account tariff.

Margin is not a maximum loss

In a simplified fixed-leverage model, a $20,000 position at 100:1 leverage uses $200 initial margin. A 1% adverse move on the position is approximately $200, before costs. Leverage changes the collateral requirement; it does not change that price exposure. Tiered margin, stop-out rules and account protections can change outcomes. Higher permitted leverage is not evidence of a better provider.

Exercise and common mistakes

Recalculate the example at 0.10 lot and double the spread. Keep the trade size fixed when comparing leverage settings. Never substitute a metals point value into a forex pip formula, count a per-side commission only once, or treat an advertised minimum spread as the average spread. Check country permissions and the contracting entity before applying the example to a real account.

Try the related tools

• pip calculator
• margin calculator
• Spread + Swap calculator

Sources and scope

Official educational reference. The numerical examples and exercises are BestBRKR teaching scenarios, not historical results or personal investment advice. Account terms can change; verify the selected product and jurisdiction.