Forex Lot Size | How Much Is A Lot In Forex?

Last Updated on January 4, 2022

What is a standard forex lot size?

A standard lot equals 100,000 units of any currency, whereas a mini-lot is 10,000 and a micro-lot is 1,000.

forex lot size
forex lot size

What is the lot size in Forex?

Lot size in Forex is a measure of the absolute value of a single trade. In a buy position, it is the total number of base currency units being bought, and in a sell position, it is the total number of base currency units being sold.

It’s important to remember that lot size doesn’t change when contracts or lots are bought or sold with most brokers.

For example, if the forex lot size was 0.1 and you bought 1 contract, your executed order would be for 10 total units (10 single base currency units in this case).

The standard forex lot size depends on the currency pair traded, and most brokers usually offer lots that are 100k (100,000 units), 50k (50,000 units), 10k (10,000 units), and even 1k (1,000 units) in size.

Forex traders use lot sizes larger than 100k, for example, 500k per position, which means they have 500 times more money in play for each position they open than the standard 100k lot size.

Most Forex traders prefer using smaller lot sizes when trading with popular currency pairs like EUR/USD, GBP/USD, GBP/JPY, and so on because there is less risk involved in case of a loss.

Many traders also use smaller lot sizes when trading very high-priced currencies, which are traded against the US Dollar (NZD/USD, AUD/USD), Yen (GBP/JPY), or Euro (EUR/GBP).

You will find that most brokers offer pip values per currency pair. Still, it’s important to remember that these are just average pip values and not exact since pip values can vary between different currency pairs.

See also  Forex Factory´s Momentum Indicator | Top 5 Momentum Indicators
forex lot size
forex lot size

What are mini lots in Forex?

A mini forex lot size is a type of trade with 10k worth of margin requirement, while the standard lot size has a 100k value of margin.

The main difference between the two is that the standard lot requires more money to open one position while mini lots have lower margin requirements which means traders have more money working for them.

Traders who use smaller lot sizes benefit from having less risk when trading. However, it’s important to remember that small lot trades with high leverage usually require more attention and experience.

Having less risk also means having less capital for your account, which can be an issue if you plan on using larger positions (5-10+ times bigger than the standard 100k) since most brokers will not permit traders to use larger position sizes.

What are micro-lots in Forex?

Micro lots are traded with 1k of the margin requirement, and they have the smallest lot size for standard retail Forex brokers.

These trades are usually only offered by brokers who cater mainly to professional traders using high leverage, generally more than 10:1 or sometimes even 100:1 or higher depending on the broker.

Micro lots are great for trading very short-term moves. However, many experienced traders warn against using too much leverage since it can quickly ruin if a trader isn’t consistently profitable with their trading results.

What is one unit in Forex?

One unit refers to either one mini lot trade, one standard lot trade, or one micro-lot trade.

If you are trading at 1:100 leverage, then each trade is equivalent to 100k in lot size or 10k in mini lot size, which means that when you open a trade for one unit, you are opening the equivalent of ten trades with standard lot sizing (1 standard lot = 100k).

See also  HDFC Forex Card Login, card types, rates, discounts, and more!

Most Forex brokers offer either fractional or decimal pricing for currency pairs meaning prices can be quoted from 2 digits after the comma up to 6 digits.

This creates various levels of discomfort when trading since different traders have different opinions on what the “ideal” level should be.

Some traders prefer having more than 6 digits after the comma because they feel it’s easier to read prices that way, while others suggest using just 2 digits after the comma, which makes Forex prices look very similar to stock prices.

You will find that most Forex brokers tend to stay in between 2 and 5 digits after the comma.

A full explanation of why traders prefer certain quoting systems is beyond the scope of this article. Still, it’s essential to ask your preferred broker what type of quoting system they use before opening an account with them because different systems can be confusing for some traders.

What is a Pip in Forex

A pip is a slang term for one-tenth of a “pipeline” or percentage point, and it’s the minimum price movement that a currency pair will make.

A pip can also be referred to as Points depending on which currency pair you are trading and whether it’s expressed in terms of Points or Pips.

There is no official unit, but instead, it varies from broker to broker and currency pair to currency pair since some brokers charge a commission based on the number of pips while others do not.

For example, suppose you trade EUR/USD with 1 Pip commission available at most FX brokers. In that case, this means you have an overall profit or loss amount, including commissions per standard 100k lot size equal to $10 no matter how many pips your trade makes.

To calculate the pip value, let’s take a look at the NZD/USD currency pair, for example (standard lot size):

See also  Forex Scams: Is Your Broker A Scam? | Forex Scam List

To figure out the pip value, divide one pip (usually 0.0001) by the current market value of the forex pair. Then, multiply that amount by your lot size, the total number of base units you are trading.

You won’t have to figure out the value of a pip on your own very often, as your forex broker or service will do it for you, but it’s a good idea to get familiar with it.

Example of pip value

Let’s assume you’re trading in the GBP/USD market for 1.50000, and you have a mini lot of 10,000.

The pip value is calculated by:

(0.0001/1.5000) x 10,000 = 0.6666

This implies that your trade would gain or lose 0.6666 pounds for each pip of movement.

Pips are the smallest unit of value in spot forex trading. In this example, the pip value is usually defined by the quote currency, which is USD.

The value of one pip in the quotation currency is:

10,000 x 0.0001 = 1

Every pip of movement results in $1 in profit or loss for your trade.

forex lot size
forex lot size

Forex lot size calculator

There are plenty of lot size calculators online.

Here are my favorites:

  1. Myfxbook
  2. Babypips
  3. CBFX

Forex lot size chart

The table below will give you an example of what a 0.01 lot size is equal to in different currencies and the pip value per standard lot for each currency pair:

Source

Conclusion

There are some factors to consider when choosing your Forex lot size.

In conclusion, a lot in Forex usually uses 100k of the base currency, and the pip value varies from broker to broker since there is no official unit.

It is essential to ask your preferred broker about their quoting system before opening an account with them because different systems can be confusing.

Tags:

Add a Comment

Your email address will not be published. Required fields are marked *