What is a lot in Forex? and what is Lot Size?
What is a lot in forex? and what is a standard lot forex? what is a micro lot in forex and what is a nano lot size?
If these questions have ever wandered your brains when starting in forex or even being in the market for a while, yet the volume of a lot just doesn’t seem to sit right in your brain then this article is for you.
We all agree that leverage is one of the most beneficial factors in forex, however, the one aspect that will affect your profit and loss way more than the leverage is the lot size. Not all trades in forex can be as low as a $1 forex minimum deposit in some forex brokers, and to make big profits you need big trades, and here comes the lot to enable that for professional investors. Yet, be cautious, big trades might mean both big profits and big losses. so you need to know how to adjust the lot size.
The lot means 100000 units of a currency/ CFDs traded in forex. It’s the size or volume of your whole trade in forex and it’s the determiner of it. And so, to know how many forex orders you can open and also calculate your margin, you need to understand how to calculate the lot.
What is a lot in forex? seems to be the most asked question I get so let me define lot size in forex for you and explain its types. 1 standard lot forex means the volume of 100 000 units of a currency or a CFD. So basically, if you said to buy 1 standard lot of a currency, it means you bought 100 000 units of that currency (the first currency appearing in a forex pair).
Let’s work with an example to put things into perspective a bit better.
Let’s assume that you’ll buy EURUSD as currency pairs and its exchange rate is 1.20
If you buy 1 lot of EURUSD with this rate you will be making 120000 worth of purchases.
Let’s assume the leverage your broker is offering is 1:100.
And so you will only need $1.200 (120.000 / 100 = $1200) in order to be able to execute the order.
Both the leverage and the margin are inversely proportional to each other. In other words, when the leverage is higher, the margin you need for trade gets lower.
And that would also mean, if the leverage is 1:500, you’ll only need $240 (120.000 / 500 = $240) to buy 1 lot of EURUSD.
For 1 lot or standard lot, the worth of one pip is equal to $10 if USD is on the counter currency in that pair. Thus, if EURUSD moves upwards by 100 pips after you buy, you are going to make $1000 of profit.
Since the higher the lot the higher the profit and loss that might occur due to that trade. And so the volume of the trade you will do must be determined by the amount of risk you are willing to take.
1 lot might be a high volume for some traders who are still starting in forex. And so for them, I say no need to worry. There are also what’s known as mini, micro, and nano lots which are lower in volume to allow for choosing the best option for you.
Mini Lot
If you want to trade in a quite smaller amount than the lot but also gain a decent profit. Then I’d say the mini lot forex is for you.
The mini lot Forex is 10 000 units of a currency or a CFD. Which means it's 10% of the standard lot volume (100.000 x 0.10 = 10.000 units).
And so, if you wanted to open a 0.10 lot, it mainly means you’re opening 1 forex mini lot.
1 pip for EURUSD is equivalent to $1 with every mini lot.
What is a Micro Lot?
What is a micro lot in forex? A micro lot Forex is 1% of a standard lot which means 1000 units of any currency or CFDs (100.000 x 0.01 = 1.000 units).
So, when you say you will trade 0.01 lot of EURUSD, you’re basically saying you’ll trade 1000 units of EURUSD.
Every 1 pip for EURUSD is $0.10 if you use micro lot forex (0.01).
Nano Lot
The smallest amount you can trade with in lots is the nano lot size. The nano lot is also called the cent lot or the cent account in some forex broker houses.
The nano lot forex is the amount less than the micro lots amount, which means the nano lot size can be either 100 or 10 units of a currency or a CFD depending on the broker house.
There are various options to choose a nano lot size forex broker within the forex market. Some brokers would refer to the nano lot as a 100 unit and use that in the accounts, others might use it in the sense of it being 10 units. By all means, nano lots aren’t offered as much by forex brokers, only a few brokers offer the nano lot/ cent accounts and its target investors are forex beginners.
FXTM and XM are 2 examples of cent account/ nano lot size forex brokers.
Nano lots are mainly used by traders who are just starting in the forex market or professionals testing new trading strategies and techniques. The advantage of the nano lot account has very minimal risks allowing the investors to try out strategies as much as they want.
Lot sizes are summarized as follows:
CFDs like gold, silver, or oil would also be traded in lots but the lot volume for those CFDs might be a bit different, for example:
- 1 lot of Gold or XAUUSD is equal to 100 ounces.
- 1 lot of Silver is equal to 5.000 ounces.
- 1 lot of Crude Oil or Brent Oil is equal to 100 barrels.
- Also, 1 lot of Natural Gas equals a 100.000-meter cube.
Note that those numbers of the CFDs equivalents are susceptible to change depending on each broker, so make sure to inquire through customer support before you start any trade in CFDs.
The lot is one of the most important points to handle when dealing with forex and so it’s very common to have so questions about the topic since it’s also the base of trading volume in forex.
Here are some of the most common and frequently asked questions about the lot forex, if you have any other questions, make sure to leave them in the comments and I’ll make sure to get back with an answer asap.
What is a lot in forex? and what is a standard lot in forex?
The lot is the basic unit in forex which represents the volume of any currency or CFDs when used in buying or selling in forex.
A standard lot in forex is 100 000 units of a currency or a CFD. And it represents 1 whole volume of the traded material.
What are the types and sizes of the lot?
The lot has 4 types of sizes:
The standard lot forex which the basic and whole form of the lot which is equivalent to 100 000 units of a currency.
The mini lot forex represents 10% of the 1 standard lot and is equivalent to 10 000 units.
The micro lot forex is equivalent to 1000 units and it holds less risk while trading.
The nano lot (also known as the cent lot/ account) is equivalent to 100 or 10 units of a currency and it has the least risk while trading. Some, but not all, forex broker houses provide the nano lot accounts for their clients.
How much is a mini lot in forex?
A mini lot forex is equivalent to 10 000 units of a currency or a CFD. And it represents 10% of the 1 standard lot. or it can be said that it represents 0.10 of the size of the lot.
The mini lot forex can be used in trades that aren’t needed to be as big as the standard lots, yet the risk taken while trading is still significant. It’s used mostly by professional trades and forex professionals.
What is a nano lot?
The nano lot forex is the smallest volume of the lot as it represents 100 or 10 units of the standard lot.
It’s also called the cent lot or the cent accounts within some broker houses.
Not all the forex brokers offer the cent accounts but FXTM and XM are examples of brokers who offer them.
Valentin Cote
I am Valentin Cote, the author and owner of this personal blog. I compare and review forex brokers in my website. I am in the trading industry since 2009 and still learning. I also write useful articles for newbies about forex and investment. I love playing online games and Forex :)
