What is a lot in forex trading: Definition in Forex

One of the common term in forex is LOT. lot is basically the number of currency units you will buy or sell. Lot size measure the unit of a transaction amount. To further explain, whenever you place a buy or sell order on your trading platform orders are placed in sizes quoted in lots.

A standard lot is the equivalent of 100,000 units of the base currency in a forex trade. That explain more about Lot in forex term. Furthermore Currencies are traded in lots rather than singular units, the larger the lot size, the more money you are risking and the bigger the potential profit or loss.

There are four common Lot sizes in forex:

Standard Lot size

Mini Lot size

Micro Lot size

Nano Lot size

The largest among the Lots size is the Standard which is referred to as 1 lot. It represents 100,000 units of the base currency. So whenever you place a order using a standard lot size, you are ordering 100,000 units of the currency being bought or sold, and one pips equals $10 on a standard lot size.

Standard lots are mostly used by professional traders, Since trading using a standard lot size involve more risks/rewards, it is mostly used by professional traders, while the mini lots are used by intermediate traders with less or little trading capital. The micro and nano lots are used by beginners who want to experiment in forex markets or understand how to trade the forex market without risking much capital.

Lot is very important in the financial market and it plays a big role on how orders are being placed as this would determine the profit or loss you are going to make at the end of each trade. For each pip movement on a lot size here is how it would appear.

A standard lot = $10

A mini lot = $1

A micro lot = $0.10

A nano lot = $0.01

Though some broker may have a different way for calculating pip values relative to lot size but whatever way they would do it, they would do the math/calculations, they would surely be able to tell you what the pip value is for the currency you are trading/placing an order on at that particular time.

Note

Whatever Lot size you make use of as an investor, it would surely determine your profits/loss in the market. Do well to choose your Lots size carefully when trading the market. If you are a professional, you can go for the Standard lot Size, and if you don't have much capital go for the Mini. If you are just a beginner, you should surely go for the Micro or Nano. Whatever way you choose to go, make your trading decision carefully.

Komolafe Peter Adedayo

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