Pips, spreads, swaps, commission, and real trading cost

Free education, not signals. This lesson is part of EarnSouthAfrica's free forex course. It does not tell you what to buy or sell, it does not promise income, and it should be practised on a demo account before any real-money decision.

A pip is the standard unit traders use to measure price movement. For most pairs, one pip is the fourth decimal place. For JPY pairs, it is usually the second decimal place. Brokers may also quote fractional pips called pipettes.

Pips only become useful when you can convert them into money. A 20-pip move is tiny or huge depending on the pair and lot size.

What you should be able to do after this lesson

• Define a pip and pipette on most pairs and JPY pairs.
• Estimate gross and net trade cost.
• Understand why holding trades overnight can create swap charges or credits.

Pip examples

• EUR/USD moves from 1.0850 to 1.0870: 20 pips.
• USD/JPY moves from 150.20 to 150.70: 50 pips.
• USD/ZAR moves from 18.5000 to 18.7000: 2,000 pips, because the fourth decimal is still the pip.

Exotic pairs like USD/ZAR can show very large pip counts. That does not automatically mean huge profit; you must calculate pip value and costs.

Spread, commission, and slippage

The spread is the difference between bid and ask. If you buy, you enter at ask and usually need price to move beyond the spread before the trade is positive. Some accounts add a commission per lot. Slippage occurs when the executed price differs from the requested price, often during fast markets or news.

Swaps and overnight positions

A swap is an overnight financing adjustment. Depending on the pair, direction, interest-rate difference, broker, and day, it can be positive or negative. A strategy that looks profitable before swaps can become weak after swaps, especially if it holds trades for days.

Academy-grade study plan

This module is the spine of the course. Strategy is allowed only after risk can be calculated, capped, journaled, and reviewed without drama. If the maths is unclear, the trade is not allowed.

Course element	What you must produce
Primary artifact	Risk ledger and review memo
Lesson focus	Pips, spreads, swaps, commission, and real trading cost
Working environment	Demo account, notebook, exported platform data, or local code sandbox. Never live funds for first practice.
Completion standard	You can explain the concept, reproduce the exercise, identify failure modes, and show evidence without relying on a seller's claims.

Instructor workflow

Use this workflow as if an instructor were marking the lesson. The important question is not whether the topic sounds familiar. The question is whether your notes, screenshots, calculations, logs, or code prove that you can apply pips, spreads, swaps, commission, and real trading cost under controlled conditions.

• Convert every trade idea into account equity, risk percentage, rand risk, stop distance, lot size, and worst-case daily loss.
• Measure results in R-multiples as well as rand so position size changes do not hide process quality.
• Define a daily stop, weekly review rule, and maximum drawdown threshold before the first trade.
• Separate trading-plan errors from execution errors, emotional errors, and market randomness.

Worked case study: R2,000 account survival exercise

A learner wants to risk R300 on a small account because the setup looks strong. The professional response is to calculate survival first. At 1 percent risk, the allowed loss is R20. If the stop distance and lot size cannot produce that number, the trade is skipped or moved to demo.

After reading the scenario, write the decision you would make before checking the suggested workflow above. Then compare your decision with the operating model. The gap between those two answers is the part of the lesson that deserves another demo repetition.

Professional template

Complete this template in your own notebook. A paid course would normally hide this kind of operating document behind worksheets; here it is part of the free lesson.

Field	Standard
Account equity	Record current equity, not a hoped-for balance after winning.
Allowed risk	Calculate risk in rand before choosing volume.
Trade invalidation	Write the price or condition that proves the idea wrong.
Review result	Classify outcome as rule-following win, rule-following loss, mistake, or unplanned action.

Failure-mode lab

Paid courses often sell confidence. A serious course teaches you how the idea breaks. Before continuing, test the failure modes below on demo, paper, or code review. If you cannot describe the failure, you are not ready to trust the concept.

• Choosing lot size because it feels small instead of calculating rand risk.
• Moving the stop because a loss feels embarrassing.
• Using a profitable week as permission to double risk.
• Reviewing only profit and ignoring whether the plan was followed.

Evidence pack and pass standard

Do not mark this lesson complete because you read it. Mark it complete only when you can show the evidence below. Keep the files in a dated folder so your learning history survives platform updates, memory gaps, and sales pressure.

• A one-page note explaining pips, spreads, swaps, commission, and real trading cost without sales language or copied definitions.
• A screenshot, export, calculation, log, or code file that proves the practical work was completed on demo.
• A written stop rule that says when this topic must not be used with real money.
• A completed risk ledger with at least 20 demo trades and R-multiple results.
• A review memo showing which mistakes will be removed before any live-money decision.

Assessment rubric

Level	What it looks like
Not ready	You can repeat the vocabulary but cannot complete the demo task, calculate the risk, explain the failure mode, or show evidence.
Course pass	You can complete the practical task on demo, explain the decision rules, show evidence, and name the conditions where the idea must not be used.
Strong pass	You can teach the concept to someone else, find edge cases, document a rejected example, and improve the template without weakening risk controls.

Advanced homework

• Recalculate the same trade at 0.25 percent, 0.5 percent, and 1 percent risk.
• Build a drawdown table showing how many losses in a row your plan can survive.
• Review five losing demo trades and separate good losses from process mistakes.

Practical drill

Do this lesson as a controlled exercise, not as a reason to trade live. Open a demo account or notebook, write the lesson title, and record what you changed, clicked, calculated, or checked. If the lesson includes code, compile it only in a demo environment and keep the original version unchanged so you can compare edits safely.

• Write a one-paragraph explanation of pips, spreads, swaps, commission, and real trading cost in your own words.
• Take one screenshot or note that proves you completed the platform, maths, research, or code task.
• Record one risk rule that would stop you from using this idea with real money.
• If anything feels unclear, repeat the lesson before moving to the next module.

How scammers misuse this topic

Scammers often take real concepts and wrap them in urgency. They may use platform jargon, bot screenshots, copied profit charts, or official-sounding language to make a paid offer feel safe. A real concept is not the same as a safe offer. Before paying anyone, ask whether you can verify the provider, reproduce the calculation, test the claim on demo, understand the risk, and walk away without pressure.

Checkpoint before continuing

• You can identify pip size on EUR/USD, USD/JPY, and USD/ZAR.
• You can explain why net profit must subtract spread, commission, swaps, and slippage.
• You can find swap information in your broker's symbol specification.

Official references

These lessons are written as free education. When platform features or rules matter, verify against the official source before using real money.

• MetaTrader 5 trading help

Risk note: leveraged forex and contracts for difference can lose money quickly. EarnSouthAfrica is an educational publisher, not a broker, adviser, signal provider, or money manager.