What is a Lot in Forex?

The forex market is designed to fit any trader, regardless of their pocket size. To achieve this, every trade you take is measured specific amounts called lots. The bigger your trading account, the bigger the lot size you can trade.

Let’s help you make more sense of forex lots in the rest of this piece. 

What are Lots in Forex Trading?

A lot in forex trading refers to the units with which forex trades are measured. It’s the amount of base currency (in units) you’re buying or selling. With this measurement, different traders of different pocket sizes can make trades commensurate with their trading account sizes.

A relatable way to see this is to imagine you wanted to buy pizza. Pizzas come in different sizes and prices. And the bigger the size you go for, the more pizzas you have to share with your friends.

In the same way, the bigger your lot size, the more money you must invest. But in the same vein, the more profit (or loss) you can make.

Why Lot Sizes Matter in Forex Trading

The biggest reason lot sizes are important is because they help you with your risk management. Depending on your lot size, every pip has a value. So, trades with larger lot sizes mean each pip costs more than trades with smaller ones.

With the proper lot sizes, you can take a position size that is commensurate with your account. Otherwise, you may enter positions that are too big for your account, which could lead to losing money rapidly. Conversely, you may enter positions too small for your account, making your profits insignificant. 

Types of Lot Sizes

There are typically four different lot sizes you will come across when trading forex. They are:

• Standard lot
• Mini lot
• Micro lot
• And nano lot. 

Each lot size requires a different minimum investment to open a trade. Each also has a specific value for every pip movement.

As you can see in the image below, a standard lot size, which is the maximum possible contract size provided by online forex brokers, is a forex trade of 100,000 units of the base currency. Hence, in this case, when you trade forex standard lot size, the pip value of a standard lot size is $10 per pip.

The mini, micro, and nano lot sizes are smaller lot sizes that enable traders to open smaller positions and to be able to trade the forex markets with lower invested capital.

What is a Standard Lot?

The standard lot size is what you will see most regularly when trading with the standard account types of many forex brokers. A standard lot is a 100,000-unit lot of the base currency, and trading with this trade size means that each pip movement in your trade would be worth $10.

In forex, one standard lot refers to the volume of 100,000 currency units. So when you buy one lot of a forex currency pair, you purchase 100,000 units from the base currency. 

Let’s say you want to buy Euro versus the US dollar on a standard lot size, and the EURUSD exchange rate is 1.17. You will be making $117,000 worth of purchase.

Standard lots are perfect for traders who have huge capital to trade with. It’s also great for long-term traders.

What’s a Mini Lot?

In Forex, one mini lot refers to the volume of 10,000 units, which is one tenth the size of a standard lot. So when you buy one mini lot of a forex currency pair, you purchase 10,000 units of the base currency. 

For example, you want to buy EUR/USD at a mini lot size at an exchange rate of 1.17. You will be making $11,700 worth of purchase.

A mini lot size is a great choice for those who may want to trade forex with slightly lower capital. But don’t let the name fool you! Even though they are referred to as mini lots, they still represent a very significant investment (and can generate a significant profit/loss).

Mini lot sizes are perfect for traders who want a mix of different trading styles. This is because mini lots allow more flexibility than standard lots but without as much risk.

What’s a Micro Lot?

Micro lots are among the smallest tradable lot sizes in the forex market. They provide a safe platform for beginner traders to get good value for money and a taste of the industry with a low initial investment while keeping the risk to a minimum.

A Micro lot equals 1% of the standard lot (100,000 x 0.01 = 1.000 units). If your account is funded in U.S. dollars, this means that a micro lot is $1,000 worth of the base currency you want to trade, and each pip value would be worth just 10 cents.

In Forex, one micro lot refers to the volume of 1,000 units. So when you buy one micro lot of a Forex currency pair, you purchase 1,000 units from the base currency. 

Once again, assume you want to buy EUR/USD on a micro lot at an exchange rate of 1.17. You will be making $1,170 worth of purchase.

What’s a Nano Lot?

A nano lot is the smallest trading lot size available in a trading account. It offers real money trading beyond a demo account, and with a much smaller level of risk involved when compared to lot sizes. 

In Forex, one nano lot refers to the volume of 100 units. So when you buy one nano lot of a forex pair, you purchase 100 units from the base currency. 

Assume you want to buy EUR/USD on a nano lot size and at an exchange rate of 1.17. You will be making $117 worth of purchase.

For many traders who want to make the first step into the trading arena, nano lots are the ideal lot size to start trading as you still get the sense of the forex and financial markets, and at the same time, there’s no high risk of losing a large sum of money.

Which Lot Size Is Best For Trading A Currency Pair? 

The forex lot size that works well for you depends on several different factors based on how you want to trade forex.  Some of these factors include:

• Risk tolerance: If you’re comfortable taking huge risks, you can for a standard lot size. But if you’re still testing the forex waters and would rather tread carefully, micro and nano lots may suit you best. 
• Trading platform: Some trading platforms can limit the lot sizes you’ll have access to, depending on your account size. Some will restrict you to nano lots if you don’t have enough capital. Others would allow you to go crazy on the standard lot size if you have a sizeable account balance.
• Market conditions: Sometimes, the market is not moving with as much volatility as you would like. In these times, you want to increase your lot sizes so that minimal price movements can still offer you sizeable profit. And in situations where the market is very volatile, you want to reduce your lot sizes to avoid taking on too much risk.
• Trading strategy: Some trading strategies require that you use bigger lot sizes. If you’re a day trader, opening and closing trades within a single trading day, you may want to reduce your risk exposure per trade by using smaller lot sizes.

Our investment advice is to have at least $100,000 of trading capital in your account balance before opening a standard trading account. Use $10,000 for a mini account and $1,000 for a micro account. 

But remember, even small movements in the price of currency pairs could send you to the point of no return with the wrong lot size.