As you trade forex, you’ll have to deal in lots.
What are lots in forex trading? Here, we’ll help you understand the basics of lots in forex and how to calculate lot sizes for your trading.
What is Lot in Forex ?
Lot in forex trading is a standardized unite of currency that represents a specific amount of the base currency in a transaction.
KEY TAKEAWAYS
- A lot is what allows you to trade in the forex industry. Because you are trading currencies, the unit of measurement of one currency won’t be equal to another. Lots standardize units of measurements across currencies.
- When you purchase a lot, you will earn or lose based on the pips gained or lost for a currency. But how much you earn depends on the type of lot you purchase.
So let’s explore the types of lots in forex trading and what they mean for you.
All currency measurements follow the pip system in forex trading.
Pips are the smallest movement currencies can make. For most currencies, a pip is .0001. So if the EUR/USD pair starts at 1.1385 and closes at 1.1386, it’s a difference of 1 pip.
| EUR-USD currency pair LOT size | Definition | Equivalent in USD |
|---|---|---|
| 1 | Standard Lot | 100,000 |
| 0.1 | Mini Lot | 10,000 |
| 0.01 | Micro Lot | 1,000 |
The Types of Lots in Forex
1) Standard Lot (100,000 Currency Units)
Standard Lot accounts for 100,000 currency units. If trading in USD, this will most likely cost you $100,000.
Because this is so standard, traders also call this a volume of 1. The other types are a portion of 1, as you will see. This volume is the equivalent of $10/pip. So imagine the currency you bought goes up 10 pip, and each pip is worth $10. You have earned $100 for the day.
2) Mini Lot (10,00 Currency Units)
Mini Lot equals 10,000 units, also known as a .1 lot.
It will earn $1.00/pip, and generally, its value is $10,000. The lot may be mini, but it’s mighty and can earn investors good money with a $100,000 investment.
3) Micro Lot (1,000 Currency Units)
Micro lot is worth 1,000 currency units or a .01 lot.
Micro lot allows you to start investing in the forex market at only $1,000 while still earning $.10/pip. It means that when you invest in high-value currency, you can start earning with a low initial investment.
4) Nano Lot (100 Currency Units)
The nano lot serves as a stepping stone to investors who want to try forex trading while minimizing risk to their funds.
Nano lots are 100 units and known to brokers as a .001 lot. It may earn you only $.01/pip. But you will learn the ins and outs of the trade and get a feel for earning with forex.
Choosing the Best Lot for You
New forex traders may want to start at the nano or even micro-lots. But if you’re ready to get serious about trading in forex, you’ll want to purchase the mini lot, at least, if not the standard.
Don’t worry if you don’t have the cash upfront for a standard lot investment. You can still start by leveraging, which allows you to put down a portion of the investment and begin earning.
Conclusion — Purchasing Lots in Forex
Lots in forex let you either take a small step into the world of forex trading or make a big splash. It allows you to control both your earning potential and risk. Whether you start with nano or standard, knowing the difference between the types of lots in forex will allow you to make the best decision for your investment.
One standard lot equals 100,000 units of the base currency.
Frequently Asked Questions (FAQs)
What forex lot types exist?
There are different lot sizes in forex trading, such as Standard, Mini, Micro, and Nano lots. A Standard lot is equal to 100,000 units of the base currency, Mini lot is 10,000 units, a Micro lot is 1,000 units, and a Nano lot is 100 units source. Thus, traders can choose the suitable lot size for their trades based on their trading strategy, risk appetite and available capital.
How much capital is needed to trade 1 round lot?
The amount of capital required to trade 1 lot depends on the leverage offered by your broker and the chosen lot size. Leverage allows trader to open a large position with a small amount of capital. For example, with a 30:1 leverage, you would need $3,333 to control a Standard lot of $100,000 source.
How much is 1 Standard lot valued in USD?
The value of 1 standard lot in USD depends on the currency pair being traded. A standard lot represents 100,000 units of the base currency in a currency pair. For example, if you are trading a standard lot of EUR/USD, it would be equal to €100,000.
What is lot size is the most popular?
Newer traders always start with smaller lot sizes like Micro or Mini lots to minimize risk while gaining experience in the market. Seasoned traders use to trade standard lots. Choosing the appropriate lot size is crucial in managing risk effectively and optimizing your trading strategy.