What Is a Forex Lot, and How Do I Determine Lot Size?

 

A lot is a unit of measurement in forex trading that is used to standardize trade size. Pips are relatively small measurements that represent the fourth decimal place when comparing the value of one currency to another.

Because trading a single unit is unfeasible, lots were created to allow merchants to swap tiny fluctuations in bulk.

The value of a lot is fixed by an exchange or other analogous market regulator, guaranteeing that everyone trades a predetermined amount and is informed of how much of an asset they are trading when they open a transaction.

Standard, mini, micro, and nano lots are utilized to further isolate them and provide traders more control over their exposure.

Explanation of Forex Lot Sizes

So, how much is a currency lot? This is determined by whether you are trading a standard, mini, micro, or nano lot. These four defined units of measurement are used to segment forex trades in order to account for minute changes in the value of a currency.

The following examples are all related to the currency pair EURUSD, which compares the euro (the base currency) to the dollar (the quote currency).

To put things into perspective, buying EUR/USD is a wager that the euro will strengthen against the dollar. If the quote price is now $1.3000, you can swap €1 for $1.3000. In other words, $1 equals 1.3000 dollars.

What Is a Standard Forex Lot?

A standard lot in the forex market is 100,000 currency units. This is the acceptable unit size, regardless of whether a trader is institutional or individual.

Example:

At the EURUSD conversion rate of $1.3000, one standard lot of the base currency (EUR) would be 130,000 units. At the current exchange rate, 100,000 units of EUR would cost 130,000 units of the quoted currency (USD).

What Is A Tiny Lot In Forex?

A standard forex lot is ten times the size of a tiny lot. In other words, a tiny lot of currency is worth $10,000. A micro lot has a lower profit and loss impact than a standard lot.

For example, if the EURUSD conversion rate was $1.3000, 13,000 units would constitute one mini lot of the base currency (EUR). This signifies that 13,000 units of the quoted currency (USD) are required to purchase 10,000 units of EUR at the present price.

What Exactly Is A Forex Micro Lot?

A micro lot in forex is one-tenth the size of a mini lot. This means it is worth 1000 units of money. A pip fluctuation causes a monetary swing of one unit of currency, or €1 if you were trading EUR.

Furthermore, because tiny lots require less leverage than bigger lots, a swing will not have the same financial impact.

If the EURUSD conversion rate was $1.3000, 1300 units would constitute one micro lot of the base currency (EUR). At the current exchange rate, 1000 units of EUR would cost 1300 units of the stated currency (USD).

What Exactly Is A Forex Nano Lot?

In the forex market, a nano lot is one-tenth of a micro lot. It is equivalent to 100 coins. A one pip movement in a micro lot translates to a price change of 0.01 units of the base currency you are trading, for example, €0.01 for EUR.

If the EURUSD conversion rate was $1.3000, 130 units would equal one micro lot of the base currency (EUR). At the current exchange rate, 100 units of EUR would cost 130 units of the quote currency (USD).

You can learn more about buying currency pairs in our forex trading guide.

Currency Lots Explained Using Chocolate Boxes

Consider a company that sells chocolate boxes in two sizes: 12 and 24 pieces. These are standard sizes to which customers have grown accustomed. They don't usually intend to buy just one chocolate from the box.

It is the same with forex currency pairs. You must buy several units of currency; you cannot buy just one. Lots are available in a variety of common sizes.

For the GBP/USD currency combination, for example, you may buy 100,000 lots of GBP as the base currency. That is a common occurrence. Instead, you might buy a small lot for 1000 GBP.

How Do You Determine Lot Size When Trading Forex?

Because your trading platform should provide you with the essential information, you should not have to calculate the lot size yourself.

While placing a transaction, the available options—standard, mini, micro, and nano—as well as the lot size you're using should be evident.

You may assess the overall size of your site by considering the size of a lot and the number of lots you've purchased.

CFDs can be traded in conventional or micro lots with IG. You can use our platform to swap between the two before placing the order.

How to Choose the Correct Forex Lot Size

Before choosing your lot size, consider the risk you are willing to take. The larger the lot size, the more leverage or money you'll need to put down. Furthermore, the more each pip movement is accentuated.

When trading EURUSD, a one-pip shift is comparable to the following monetary amounts for each lot size:

A basic lot costs $10.

A tiny lot costs $1.

A micro lot is worth $0.10.

A nano lot is equal to $0.01.

Keep in mind that the value of the currency in the currency pair you are trading will be determined by the base currency. As you can see, the cost of a one-pip movement falls as the lot size increases.

This means that you can have a lesser investment by trading smaller amounts.