What is a Forex lot, and how can I figure out how big it is?

 

In forex trading, a lot is a unit of measurement used to standardize the size of a trade. To compare the value of one currency to another, people use "pips," which are very small measurements that represent the fourth decimal place.

Because it wasn't practical to trade a single unit, "lots" were made so that traders could trade these small changes in groups.

A lot's value is set by an exchange or other similar market regulator. This makes sure that everyone trades a set amount and knows how much of an asset they are trading when they start a position.

The standard, mini, micro, and nano sizes of lots are used to make them even more different and give traders more control over their exposure.

How Big Do Forex Lots Get?

So, how much does it cost to buy a currency lot? This will depend on whether you are trading a regular lot, a mini lot, a micro lot, or a nano lot. Forex trades are broken up into these four standard units of measure to account for small changes in the value of a currency.

All of the examples that follow are related to the currency pair EURUSD, which compares the euro (the base currency) to the dollar (the quote currency).

For example, if you buy EUR/USD, you are betting that the euro will get stronger against the dollar. If the current quote price is $1.3000, you can trade €1 for $1.3000. To say it another way, $1 is worth $1,3000.

What Does It Mean When Someone Says "A Typical Forex Lot"?

In the world of foreign exchange, a normal lot is 100,000 units of currency. Whether a trader is part of an institution or not, this is the standard unit size.

Example:

At a rate of $1.3000 per EUR, 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?

The difference between a normal forex lot and a tiny lot is ten. In other words, 10,000 units of money are equal to a small amount of FX. The size of a micro lot means that it has less of an effect on profit and loss than a regular lot.

One mini lot of the base currency (EUR) would be 13,000 units if the exchange rate between EUR and USD was $1,3000. This means that at the current price, you would need 13,000 units of the quoted currency (USD) to buy 10,000 units of EUR.

What Does a Micro Lot Mean in Forex?

In foreign exchange, a micro lot is one-tenth the size of a mini lot. This means that it is worth 1,000 money units. One unit of currency, or €1 if you were trading EUR, is equal to one pip's worth of change.

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

One micro lot of the base currency (EUR) would be 1300 units if the exchange rate between EUR and USD was $1,3000. At the current exchange rate, 1000 units of EUR would cost 1300 units of the stated currency (USD).

What Does It Mean to Have a Forex Nano Lot?

In the FX market, a nano lot is one-tenth of a micro lot. It's the same as 100 dollars. One pip is equal to a change in price of 0.01 units of the base currency you are trading, like €0.01 for EUR, for a micro lot.

One nano lot of the base currency (EUR) would be 130 units if the exchange rate between EUR and USD was $1,3000. 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 guide to forex trading.

How to Explain Money with Chocolate Boxes

Think about a business that sold chocolate boxes with either 12 or 24 pieces. These are the standard sizes that customers are used to. Most of the time, they don't plan to buy just one chocolate from the box.

The same is true for forex currency pairs. You can't just buy one unit of currency. You have to buy a lot of them. Lots come in standard sizes that are easy to understand.

For example, you can buy 100,000 lots of GBP as the base currency for the currency pair GBP/USD. That is a typical amount. You could instead buy a small lot for 1000 GBP.

How Do You Figure Out The Lot Size When You Trade Forex?

Since your trading platform should tell you what you need to know, you shouldn't have to figure out the lot size on your own.

When you place a trade, it should be clear which options are available (standard, mini, micro, and nano) and what size lot you are using.

You can figure out how big your location is by adding up the sizes of the lots you've bought and the number of them.

You can trade normal or micro lots of CFDs with IG. Using our platform, you can switch between the two before you place the order.

How to Choose the Right Lot Size in Forex

Think about how much risk you want to take before you choose the size of your lot. The bigger the lot size, the more leverage or money you'll need. Also, the more each pip moves, the louder it will be.

If you trade EURUSD, a one-pip change is equal to the following amounts of money for each lot size:

A typical lot Equals $10

A tiny lot Equals $1

A micro lot = $0.10

A micro lot = $0.01

Keep in mind that the value of the currency in the currency pair you are trading will depend on the base currency. You can see that the price of a one-pip move goes down as the size of the lot goes up.

This means that you can have a lower investment if you trade smaller amounts.