Lot Size in Forex Explained
Lots standardize currency trades. Discover the best lot size to trade for your assets and risk tolerance.
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Don’t you wish you could buy a ton of the things you love?
- ☑ Swimming pools filled with ice cream.
- ☑ Giant libraries filled with books.
- ☑ Vacation homes filled with… more vacation homes inside.
The point is, materialism aside, you can’t have too much of a good thing. Part of the fun of playing the forex market is making a little extra cheddar that you can use to fill your coffers.
Sometimes, in forex, you need to buy a whole darn lot of something in order for it to really be worth anything. If you’re managing a significant portfolio, you aren’t going to be trading $25 a day – you’re going to be trading a whole lot more, so that even minor fluctuations (including choppy markets as central banks evaluate responses to the pandemic) can mean something major for you and your bottom line.
Forex lots are, in a certain light, a solution to this problem. They’re a way of standardizing large quantities of assets, instead of just vaguely referring to “a whole bunch of currency.” In this guide, we’ll help you understand just what forex lots are, how to calculate their size, and of course, what to do with this information to make your trades that much better.
Ready? Let’s get to it! 🚀
- What is a 'Lot' in Forex?
- Forex Lot Example
- How Does Lot Size Work?
- The Different Lot Sizes
- How to Calculate Lot Size
- How Leverage Impacts Lot Size
- What Lot Size is Best?
- Conclusion
- FAQs
- Get Started Trading Forex
What is a Lot in Forex? 💱
In forex, a lot refers to a set amount of any given currency. Even if you’re just starting to learn about the forex market, you know that the amount of profit or loss you make depends on the amount of principal you coughed up in the first place. Lots give you a way to look at the same quantity or increment of different currencies.
In the past, spot forex was only traded in particular lots – so you could get 100 units of currency, or 1,000, but not 565, or whatever your favorite number is. Now, non-standard lots have become available to more and more traders. With forex reserves rising to an all-time high of $608 billion, it’s a great time to cash in using lots to standardize your trades.
Forex Lot Example 👇
So, how exactly do these lots work? Let’s start with a standard lot – we’ll get into the different types in the next section. A standard lot is 100,000 units of currency. If you see a move of just one pip, that represents a $10 change to a standard lot.
Let’s unpack that. Say you buy $100,000 against the Japanese yen, with an exchange rate of 105.00. If the exchange rate then moves to 105.50, that’s a movement of 50 pips. Because each pip represents $10 for the standard lot, you have made $500. Woo! Of course, if it goes down to 104.50, you lose $500. Womp, womp.
How Does Lot Size Work in Forex? 🔎
Forex lots come in all shapes and sizes. The following table breaks down how many units of currency are represented by each of the common lot sizes, and how much a movement of one pip represents in dollars.
| Lot Size | Units of Currency | Volume | Dollars per Pip |
|---|---|---|---|
| Standard lot | 100,000 | 1 | $10/pip |
| Mini lot | 10,000 | 0.1 | $1/pip |
| Micro lot | 1,000 | 0.01 | $0.1/pip |
| Nano lot | 100 | 0.001 | $0.01/pip |
Now that you have the basic spread, let’s get into the details of why these lots are broken down this way, and when each kind can be advantageous. You’ll need to make decisions based on your assets, risk management strategies, and more.
Standard Lots ✔️
A standard lot represents 100,000 units of currency—this is the most common lot size with many forex brokers. More experienced forex traders are often used to trading at this level, but if you are new to forex, you might not want to start out with $100,000 (if you’re trading USD) all at once.
As we mentioned earlier, your bottom line will fluctuate by $10 with every pip move. Retail traders with low account balances usually won’t trade in standard lots, since their accounts can be wiped out by small fluctuations if they’re using a lot of leverage (more on that below).
So if you’re just getting into forex because gold markets are in a downturn, or you’re excited about the high market liquidity, you might not quite be ready for standard lots yet. Once you have a robust account and you know what you’re doing, then spring for the standard lot—and feel good doing it!
Mini Lots ✔️
As the name suggests, a mini lot is smaller than a standard lot. It represents 10,000 units of currency. It’s also a very popular choice with forex brokers, and is often used by traders who want to use less or no leverage.
Don’t let the word “mini” fool you – this is still a significant investment. But, it’s a little more beginner-friendly, as long as you have a decent amount of capital. A pip change will represent $1 in your bank account – though be aware that currencies can move 100 pips or more in a day, so that can still add up. Many traders suggest starting with at least $2,000 before trading mini lots.
Micro Lots ✔️
A micro lot is the next step smaller – down to 1,000 units of currency. Some brokers offer micro lots, but not all of them do. Micro lots are a great choice for new traders looking to get a sense of the market, as they can practice trading while putting very little actual money on the line.
Nano Lots ✔️
And now, for the tiniest lot size available – the nano lot. This is just 100 units of currency. So cute and little! This is more rare as you can barely eke out a noticeable profit with an investment of this size, but many top brokers for forex trading do still offer it.
How to Calculate Lot Size ➗
If this section sounds like it’s going to be about math – don’t worry. The good news here is that any decent forex trading platform will automatically calculate lots, leaving you free to watch the value of Bitcoin continue to drop, or whatever other forex research you do.
If you want to calculate lots manually, it’s very simple. Just multiply the base currency with the lot size, and voila! You’ve got it.
Let’s say you’re trading EUR/USD, with an exchange rate of $1.4000. One standard lot of the base currency would then be 140,000 units – meaning, you would need $140,000 to buy 100,000 units of EUR.
Now, say you want to calculate your potential profits. How much will your bank account fluctuate per pip if you grab a standard lot? Say we’re trading USD/JPY. If the exchange rate is 119.80, you’ll need to multiply that by .01 (one pip), and then by 100,000 (the size of the lot). You can see now that your potential profits (or losses) are $8.34 per pip.
Of course, you could always use available tools to help calculate lot size in forex. However, it’s also important that forex traders understand the mathematical equation behind every calculation.
How Leverage Impacts Lot Size ⚖️
In forex, you can control much larger amounts of capital than you actually have in your account by using leverage. This can make your profits much larger – but it can also make your losses much larger, and can even wipe out your account if you’re unlucky.
Say you have $2,000 in your account, and you’re trading with a standard lot (100,000 units). That means one pip represents a change of $10 in your account. A 20 pip move, which is not at all uncommon to happen in a single day, would affect your account by $200. That’s a 10% change in your account balance – just reacting to pretty minor fluctuations.
This is possible if your broker offers leverage of 50:1 – this would mean that you are able to trade with an amount 50 times greater that what you’re investing. Just keep in mind that even though leverage can increase you profits manyfold, it can also increase losses – and you have to pay a bit of interest because you’re trading with borrowed money.
$2,000 x 50 = $100,000 (standard lot)
What Lot Size is Best? 🏆
Lots are not one size fits all, so there’s no way of saying which will be best for your trading strategy. How much capital are you willing and able to risk? This will directly determine how much you are able to trade.
Often, traders with more forex experience are willing to take on more risk. They’ve seen the market fluctuations like dips in the dollar, and know how to cope with them. You might start with a demo account, then move into nano or micro lots, and then accrue the capital and market knowledge to take on mini lots and standard lots.
Conclusion 🏁
You’re now ready to take a good look at your trading strategy, your risk tolerance, and your favorite currency pairs, and choose the right lot size for you. Remember, most information about lots should be provided to you by your broker – but it’s always a good idea to understand the mathematics and mechanics behind this.
Ultimately, lots aren’t a trading strategy in themselves. They’re just part of the vocabulary used in the forex market to simplify trades. Now, you can sling around that vocab like a pro – and definitely seem like a forex expert at dinner parties.
Lot Size with Forex Trading: FAQs
-
How Much is One Lot in Forex?
A standard lot is 100,000 units of currency. A mini lot is 10,000 units. A micro lot is 1,000 units. A nano lot is 100 units.
-
What Does 0.01 Lot Size Mean?
A 0.01 lot size refers to a micro lot, which represents 1,000 units of currency. This means that a one-pip fluctuation will grant you a profit or loss of $0.10.
-
How Many Dollars is 100 Pips?
A pip is one-hundredth of one percent (0.0001). The movement of pips can correspond to profit or loss, but they do not have inherent value.
-
How Many Lots Can I Trade with $1,000?
Many traders would choose to trade micro lots with $1,000, as these represent 1,000 units of currency and are thus less likely to be wiped out by minor fluctuations, which can happen if you used leverage to trade a larger lot.
Get Started Trading Forex
0.9
1
0.363
0.7
$250
$100
93
82 (in US)
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1.2
0.7
1.4
$100
$0
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71
Average spread EUR/USD standard
0.9
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1.2
All-in cost EUR/USD - active
0.363
0.7
1.4
Minimum initial deposit
$250
$100
$0
Total currency pairs
93
82 (in US)
71
Demo account?
Social / copy trading?
All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.
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