In Forex trading, a lot is known as a specific amount of funds that are being traded. It can also be called the size of trader’s positions. There are several different types of lots, which ensures high diversity in the market. A standard lot is a very popular size in the market. This equals 100,000 units of a currency. For example, if you are trading 1 lot of USD, it means that you are trading 100,000 US dollars. If you are trading 1 lot Euro, you are trading 100,000 Euros, and so on.
Understanding Forex lot value and the meaning behind it can be a very important thing, as lot represents one of the most important and most-used terms in the Forex trading market. There are several different types of lots in the market. Depending on the broker you are using, you will be offered different types of it.
In this guide to Forex trading lots, we are going to discuss everything there is to know about this term. So, follow our detailed guide to lots in Forex trading and learn what it really stands for.
Forex lot meaning explained
Lot is one of the most important terms used in the Forex trading market. A standard lot in Forex trading equals 100,000 units of a currency you are trading. But, this is not the only type of lot available n the market. There are numerous other types of lots available in the market.
The main idea behind different types of lots is to make Forex trading more diverse for investors. Among the most popular Forex trading lots, you can find:
- Forex standard lot
- Forex mini lot
- Forex micro lot
- Forex nano lot
These four are the most frequently used types of lots in the market. That said, there are several others available as well. Depending on the Forex broker that you are using, you will be offered different amounts of Forex trading lots. Since Forex brokers are competing with each other in different regards, they are also trying to offer more comfortable services to traders. Among them, diversifying the lot offering to traders can be a very important thing.
A standard lot in Forex trading, as we have already said, equals 100,000 units of a currency. The second biggest in size is the mini lot, which equals 10,000 units of a currency. Then, there is a micro lot, which equals 1,000 units of a currency. Lastly, we have a nano lot, which equals 100 units of a currency.
Lot types and Forex account lot size
While talking about a lot in Forex trading, it is very important to note that not only they differ in terms of sizes, but in terms of types as well. Because there are so many ways lots can be differentiated, some people are getting confused while talking about lots in Forex trading.
While there are four main Forex lot sizes, there are several other different types of them, which does not really have to do much with the size of the lot.
The actual Forex lot types depend on both the size of the lot and the position that the trader opens. So, the three main lot types are the Forex trading market at partial lots, actual, ordinary lots, and round turn lots. The partial lot can be found when a trade is opened with a buy order for a standard size lot, but closed with a sell order that is half of the initial, buy order.
After this, the buy position is closed completely, and some portion of it is still pending. An ordinary, regular type of lot is opened and closed with a lot of any size.
As for the third type of lot, the round turn lot, it can be found when you open a buy order and close it with a sell order. While talking about Forex lot explained, it is hard to say which one is the best option to go with. When it comes to saying which one can display the best results, it can be said that it largely depends on the individual trading strategies of traders. Knowing the real meaning of Forex lot size can help you find the one that fits your needs the best.
How to choose Forex lot size
There are several things that choosing a lot size might depend on. Among the most important factors that traders should keep in mind is their trading experience, the strategy they are using, as well as the asset they are trading. In the Forex trading market, a lot is a very important, yet sensitive subject. For example, if a 50 pip move in the market will be barely noticeable on a small trade, but it could be quite sensitive when it comes to large-scale trading.
So, let’s discuss some of the Forex lot size chart examples and see how they could influence your trades. When it comes to creating a Forex lot trading account, the smallest one that you can get in the majority of Forex brokers is the micro lot account. To trade USD, you will be only required to have $1,000 for 1 micro lot position.
As for the cost of one pip for these account holders, it would be 10 cents. This might be a great offering for traders who are just getting started in the market and prefer to build up some knowledge and skills before starting actual Forex trading. Falling more into the middle size is the mini lot account, which offers traders the ability to trade higher positions. The size of the positions with mini lot equals 10,000 currency units.
This means that if your account uses USD, the cost of one pip will be 1 US dollar. Some might say that the difference is not that much, however, considering how volatile the Forex trading market can be, this can be very much visible during trading. It is very important to choose wisely when it comes to different amounts of lots in the Forex trading market.
The most popular lot size in Forex trading is the standard lot, which is also Forex large lot size compared to others. This equals 100,000 units of a currency. The cost of a pip for this size of the lot is 10 US dollars. In most cases, Forex traders are using leverage when trading Forex to increase their potential profits. This should also be considered while choosing the lot size to use.
How to trade such high positions?
You might be wondering right now that it is impossible for a retail trader to invest so much money in the Forex trading market, and you might be right. However, a very important thing about Forex trading is that you are not required to have $100,000 on your account to open a position equaling 1 standard lot.
This is possible thanks to leveraged trading. But what is leverage? Leverage in the Forex trading market is one of the most popular tools that is used by millions of traders around the world. This gives you the ability to open positions far beyond what your actual account balance would allow you.
Leverage can be seen as a type of borrowed money that you take from the broker to open large positions. There are numerous things that the amount of leverage depends on. This includes the broker you are using, your location and local regulations, as well as your risk tolerance.
In most cases, brokers require traders to deposit a certain amount of money, which is known as a margin in the Forex trading market. The broker will also let you know how much margin is required per position. For example, if available leverage is 1:100, it means that you are required to have 1 percent of the position deposited on your trading account. This means that you will be able to open a position worth 1 lot, ($100,000) with as little deposit as $1,000.
Forex lot size formula – How can it be calculated?
We have already described the main idea behind a lot in Forex trading and how it can be used by traders around the world. However, there is much more that traders should know about Forex lot size and its place in the Forex trading market. Understanding how it is calculated might help you better understand the way it works in the Forex trading market. There is a simple formula used in the calculation of lot size, and it looks like this:
((Percentage x Margin) ÷ Pip Amount) / 100,000
Although there is no need of knowing the formula of lot size in the Forex trading market, if you are curious about how exactly it works, you can easily understand it. In actual Forex trading, there is no need for calculating lot size manually, as there are a variety of Forex lot size calculators that complete the task within seconds. But, even that is not needed, as the majority of Forex brokers in the market offer traders final numbers, that do not require any calculations.
Forex brokers lot size & Trading volume
Volume in the Forex trading market stands for the total amount of trades included in the investor’s positions. In most cases, Forex traders are using the volume to determine the size of their trades. There are numerous Forex brokers around the world that offer traders with higher trading volume the ability to create special VIP accounts and it might be quite important to understand the idea behind volume in the Forex trading market.
When it comes to choosing the best lot size, it depends on a lot of things. Successful traders say that the secret is understanding your needs in the Forex trading market. By doing so, you can make sure to avoid unnecessary risks of the Forex trading market.
So, if you are a beginner without much experience in the market, do not worry about increasing your trading volume, rather, focus on increasing your experience in the market, and everything will come naturally. It might be a better idea to trade using micro-lots at first and have lower profits, rather than using standard lots and losing thousands of dollars.
Final thoughts on Forex lot definition
Lot is among the most important terms used in the world of Forex trading. It describes the size of the positions opened by Forex traders. There are numerous different types of lots available in the market in terms of size. For example, the most popular lot sizes in the Forex trading market are standard, mini, micro, and nano lots.
A standard lot in Forex trading equals 100,000 units of a currency, a mini lot equals 10,000 units of a currency, a micro lot stands for the 1,000 units of a currency, while a nano lot only represents 100 units of a currency. Understanding Forex lot sizes are among the most important things for beginners in the market, as it represents the actual size of your positions.
Frequently Asked Questions on Forex lot size
What is trading volume and how is it tracked?
Volume in the Forex trading market shows the total size of your trades. This can be a very important indicator of your experience in the Forex trading market. In the majority of cases, brokers provide special indicators of the volume of a certain Forex trader. Checking your own trading volume should not be a huge challenge as it is mostly provided by the brokers.
Having a high trading volume can be a huge advantage in some cases. This is especially true if you are trading with a broker that offers special services for highly experienced Forex traders. In most cases, the trading volume can be seen as an indicator of a trader’s experience.
What are the different sizes of lots?
There are four main different sizes of lots available in the Forex trading market. They are a standard lot, mini lot, micro lot, and nano lot. Standard lot equals 100,000 units of a currency, a mini lot equals 10,000 units of a currency, while Forex micro lot account users open a position worth 1,000 units of a currency. The smallest one is the nano lot, which equals just 100 units of a currency.
Depending on your experience, you can use any of these types of lots with the majority of Forex brokers. However, keep in mind that there also are some brokers that offer other sizes of lots as well.
