Bid/Ask, Pips, Lots & Leverage Explained

A Beginner’s Guide to Understanding the Building Blocks of Forex Trading

Let’s be honest: the first time someone mentions “pips,” “lots,” and “leverage,” it sounds less like finance and more like pirate slang.

But if you want to be a profitable forex trader, you need to speak the language—and no, not fluently on day one. Just well enough that you know what’s going on when you enter a trade and (hopefully) when you exit with some profit.

The good news? These terms aren’t as intimidating as they sound. And once you understand them, you’ll be able to manage risk, calculate trade size, and navigate your trading platform with confidence—not confusion.

This is exactly the kind of trading literacy that groups like SilverBullsFX prioritize. Their strategies are built around mastering the technical and mechanical aspects of trading, and it’s one reason they’ve built a reputation for consistency and sharp execution in the markets.

Let’s break down the core concepts—without the fluff and without the financial jargon headache.

Introduction: Why You Need to Learn the Lingo

Imagine walking into a gym with no idea what “sets,” “reps,” or “max load” means. You could still lift weights… but you’d probably hurt yourself, fast.

Forex is the same. If you want to trade, you need to understand the mechanics: how trades are placed, measured, and sized. That means getting to know bid/ask, pips, lots, and leverage.

By the end of this article, you’ll know what all four mean, how they work, and—most importantly—how they affect your trades.

1. Bid/Ask: The Price of Admission

What Is the Bid/Ask Spread?

In every trade, there are two prices:

• Bid: The price at which you can sell a currency pair.
• Ask (or “offer”): The price at which you can buy the currency pair.

The difference between them is the spread, and that’s how brokers make money—kind of like the “house edge” in a casino, but without free drinks.

Example:

Let’s say EUR/USD shows:

• Bid: 1.1050
• Ask: 1.1052

The spread here is 2 pips. That means when you enter the trade, you’re already 2 pips in the red. Your trade needs to move in your favor by at least the spread amount before you start profiting.

SilverBullsFX puts a big emphasis on understanding spread mechanics when timing trades—especially in fast-moving markets where spread widening can crush an otherwise solid setup.

2. Pips: The Tiny Movers With Big Impact

What Is a Pip?

A pip stands for “percentage in point” and is the smallest price move most currency pairs can make.

• For most pairs: 1 pip = 0.0001
• For JPY pairs (like USD/JPY): 1 pip = 0.01

Why Pips Matter:

Pips are how you measure profit or loss in forex. If EUR/USD moves from 1.1000 to 1.1010, that’s a 10-pip move.

You’ll often hear traders say, “I made 40 pips on that trade.” Translation: price moved 40 pips in their favor.

3. Lots: How Big Is Your Trade?

What’s a Lot?

A lot is a standardized unit of currency you trade. In forex, the three main lot sizes are:

• Standard lot = 100,000 units (1.0 lot)
• Mini lot = 10,000 units (0.1 lot)
• Micro lot = 1,000 units (0.01 lot)

How It Relates to Pips:

Each lot size changes how much each pip is worth.

So if you’re trading a standard lot and gain 25 pips, that’s $250 profit. If you lose 25 pips… you guessed it—$250 gone.

4. Leverage: Double-Edged Sword

What Is Leverage?

Leverage lets you control a large trade size with a smaller amount of capital. It’s like putting down a small deposit to control a big asset.

• 50:1 leverage means $1 can control $50.
• 100:1 leverage means $1 can control $100.

Why It’s Both Awesome and Dangerous

Leverage can amplify your gains—but also your losses.

Let’s say you have a $1,000 account and use 100:1 leverage to open a $100,000 position. A 1% move against you is a $1,000 loss. Account gone. Just like that.

Using appropriate lot sizes and risk management with leverage is key, which is why SilverBullsFX walks through this entire process in their free video guide. It explains how to calculate position size, how much leverage is too much, and how to avoid blowing up your account because you “just wanted to test a quick setup.”

Common Mistakes Beginners Make

Let’s save you some headaches:

• Using too much leverage: Because “more potential profit” sounds great… until the market doesn’t agree.
• Not understanding lot size: Accidentally trading 1.0 instead of 0.1? That’s an expensive typo.
• Ignoring spread: Trading during low liquidity times? Your spread might spike without warning.
• Confusing pips and points: These aren’t interchangeable. Know the difference.
• Guessing instead of calculating: Always know your pip value and risk before entering a trade.

Conclusion: Learn the Basics Before You Trade Big

Forex isn’t just about “buy low, sell high.” It’s about knowing how much you’re trading, what the trade costs, and howmarket movement impacts your account.

Understanding bid/ask, pips, lots, and leverage is like learning how to drive before entering a race. The car might look cool, but if you don’t know how the brakes work, you’re just one sharp turn away from disaster.

If you want help putting all of this into action, SilverBullsFX offers free high-quality trading signals, a step-by-step video course, and even free 1:1 beginner support to help you understand position sizing, leverage use, and risk management from day one.

Because in forex, knowledge isn’t optional—it’s the real currency.