What is a Lot and lot sizes in forex trading? What is a Micro Lot or even Nano Lot in Forex? How can I decide lot sizes when I execute my trades? I’ll try to explain all to you as much as I can. Yes, one of the best advantageous aspects of forex markets is leverage but the main factor that will affect your profits and losses is lot sizes. So, in order to survive large losses in your trades, you need to know what lot means and how you should adjust your lot size.
Basically, lot means size or volume of your trades in Forex. In other words I can say size of your trades that you open in the Forex market is determined by lot. So if you want to learn how many orders you can open and how much margin you need for those orders, you need to know the methods to calculate lots.
How much is 1 Lot?
In Forex, 1 standard lot refers to volume of 100.000 units. So when you buy 1 lot of a forex pair, that means you purchased 100.000 units from the base currency (the first currency appearing in a forex pair).
Let’s say that you want to buy EURUSD and assume that EURUSD exchange rate is 1.20. When you buy 1 lot of EURUSD you will be making $120.000 worth of purchase. If you are using leverage on your broker you don’t need to have $120.000. With 1:100 leverage, you will only need $1.200 (120.000 / 100 = $1200) in order to be able to execute the order. When the leverage goes higher, margin you need to open the trade goes lower. For example, if you are using 1:500 leverage, you need only $240 (120.000 / 500 = $240) to buy 1 standard lot of EURUSD.
For 1 lot or standard lot, worth of one pip is equal to $10 if USD is on the counter currency in that pair. Thus, if EURUSD moves upwards for 100 pips after you buy, you are going to make $1000 of profit.
I think every trader must determine the volume of the trades based on their own risk perception, because bigger lot means bigger the profit/loss from the trades. By the way it is possible to open trades under 1 lot using mini lot, micro lot and nano lot.
If you are new in forex trading, I strongly recommend you to use mini, micro or nano lots to avoid big losses. Mini lot is equal to %10 of standard lot (100.000 x 0.10 = 10.000 units). Thus, when you open 0.10 lot, you will trade 1 mini lot. With every mini lot, worth of 1 pip for EURUSD equals to $1.
Micro lot is equal to %1 of standard lot (100.000 x 0.01 = 1.000 units). When you trade 0.01 lot of EURUSD, you buy or sell 1.000 units of EURUSD. Worth of every 1 pip for EURUSD is $0.10 if you use micro lot (0.01).
Nano lot, called cent lot by some forex brokers, is equal to either 100 or 10 units. In some forex brokers, nano lot refers to 10 units while in some other brokers, it may refer to 100 units. Nano lot is not offered by many forex brokers. Actually, I can say that only few brokers offer this option as an account type such as FXTM and XM. Nano lot is the safest way to trade if you are a novice trader or if you are testing a new trading strategy. You can go through the learning process with much smaller risk and loss. Besides, if you bought a new expert advisor or are trying a new trading strategy, I recommend you to use nano lot for first few weeks so that you won’t suffer big losses.
You can see lot sizes in forex as following table:
How to Calculate Lot Sizes at Commodities
So I think answer is clear now: 1 standard lot means 100.000 units for any currency. But what does 1 lot mean for commodities like gold, silver or oil?
1 lot of Gold or XAUUSD is equal to 100 ounce and 1 lot of Silver is equal to 5.000 ounce. And for the Crude Oil or Brent Oil 1 lot is equal to 100 barrel. Also 1 lot of Natural Gas makes 100.000 cubic meters. Those numbers are the industry standards but may change among brokers. So ask your broker before you execute a trade on commodities for a clearer answer.