What Is A Forex Lot And How Is The Lot Size Calculated?

To standardize trade size in forex trading, a lot is a unit of measurement. Pips, which represent the fourth decimal place and are extremely tiny measurements, are used to compare the value of different currencies.

Because trading a single unit was impossible, lots were created to enable traders to trade these small swings in volume.

The value of a lot is set by an exchange or other analogous market regulator to make sure that everyone trades a set amount and is aware of how much of an asset they are trading when they open a position.

In order to further differentiate them and provide traders greater control over their exposure, there are four different sizes of lots: regular, mini, micro, and nano.

Explanation Of Forex Lot Sizes

So what is the price of a currency lot? This depends on whether you're trading a standard, mini, micro, or nano lot. To accommodate for slight fluctuations in a currency's value, forex trades are divided up using these four defined units of measurement.

The following examples all relate to the currency pair EURUSD, which pits the euro (the base currency) against the dollar (the quote currency).

To put things in perspective, buying EUR/USD is a wager on the euro's strength relative to the dollar. If the quote price is currently $1.3000, you can trade 1 euro for $1.3000. In other words, $1 is equivalent to $1.3000.

What Do You Mean by a Typical Forex Lot?

A typical 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, 130,000 units of the base currency (EUR) would make up one standard lot. Accordingly, at the current exchange rate, 100,000 units of the stated currency (EUR) would cost 130,000 units of the quoted currency (USD).

What Is A Tiny Lot In Forex?

A tiny lot is ten times smaller than a typical FX lot. In other words, 10,000 units of currency are equal to one small lot of FX. The size of a micro lot results in a lower influence on profit and loss than a traditional lot.

For instance, if the EURUSD exchange rate was $1.3000, 13,000 units of the base currency (EUR) would equal one mini lot. As a result, 13,000 units of the quoted currency (USD) are needed to buy 10,000 units of EUR at the present price.

What Does A Micro Lot In Forex Mean?

In forex, a micro lot is one-tenth the size of a mini lot. This suggests that it is worth a thousand dollars. A pip movement results in a monetary swing of 1 unit, or €1 if you were trading EUR.

Additionally, a swing won't have the same financial impact on micro lots because they don't need as much leverage as larger lots.

A micro lot of the base currency (EUR), for instance, would be made up of 1300 units if the EURUSD conversion rate was $1.3000. As a result, at the current exchange rate, 1000 units of EUR would cost 1300 units of the stated currency (USD).

What Does A Nano Lot In Forex Mean?

In the FX market, a nano lot is one tenth of a micro lot. It is equivalent to 100 coins. The price change of 0.01 units of the base currency you are trading, such as €0.01 for EUR, is represented as one pip in a micro lot.

Example: If the EURUSD conversion rate was $1.3000, 130 units would equal one micro lot of the base currency (EUR). As a result, at the current exchange rate, 100 units of EUR would cost 130 units of the quoted currency (USD).

You can learn more about purchasing currency pairs by reading our forex trading guide.

Chocolate Boxes Are Used To Describe Currency Lots

Think about a company that provided chocolate boxes with 12 and 24 pieces in two distinct sizes. Customers have been accustomed to these standard sizes. They rarely have the intention of buying one chocolate from the box.

It is the same with forex currency pairs. You can't buy just one unit of currency; you must buy several. There are several that come in well recognized standard sizes.

You may, for instance, buy 100,000 lots of GBP as the base currency for the GBP/USD currency pair. That group is typical. Instead, you may spend 1000 GBP on a small amount.

How Do You Determine The Lot Size When Trading Forex?

You normally won't need to choose the lot size yourself because your trading platform should provide you with the relevant information.

Standard, mini, micro, and nano options should be readily apparent as you place a trade, along with the lot size you're utilizing.

You can calculate the total size of your location by taking into consideration the size of a lot and the number of lots you've bought.

CFDs can be used to trade regular or micro lots with IG. Using our platform, you can go back and forth between the two before placing the order.

Tips For Choosing The Correct Forex Lot Size

Before choosing your lot size, consider the risk you are willing to take. You will need to use greater leverage or put down more money the larger the lot size. Each pip movement will also be emphasized considerably as well.

For each lot size while trading EURUSD, a movement in one pip is equal to the following amounts in money:

A typical lot costs $10.

Mini lots cost $1.

A microlot costs $0.10.

A micro lot costs $0.01

Keep in mind that the value of the currency in the currency pair you are trading will rely on the value of the base currency. As you can see, the cost of a one-pip movement goes down as the lot size increases.

This suggests that you can have a reduced investment by trading smaller amounts.