Forex is commonly traded in specific amounts called lots, or basically the number of currency units you will buy or sell. A lot is the smallest available position size that you can place when trading a currency pair in the foreign exchange market.
To trade forex, you need to know the size of lots that forex brokers offer. You will come across different lot sizes in your trading career, and knowing how much money you need to invest and the pip value in each lot size is crucial to your success in currency trading.
As mentioned, there are typically 4 Forex lot sizes that you will come across when trading Forex – a standard lot, mini lot, micro lot, and nano lot. Each lot size requires a different minimum investment in order to open a forex trade and has a different value of one pip movement.
Simply put, lots in forex trading are units that measure the trade size and refer to how many units of the base currency versus the other you will buy or sell. 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.
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 size of position means that each pip movement in your trade would be worth $10.
How much is 1 standard lot?
In Forex, 1 standard lot refers to a volume of 100,000 units. So when you buy 1 lot of a Forex currency pair, that means you purchased 100,000 units from the base currency. Let’s say that you want to buy Euro versus the US dollar and the EURUSD exchange rate is 1.17. So, when you buy 1 standard lot of EUR/USD you will be making $117,000 worth of purchases.
A mini lot size is a great choice for those who may want to trade forex on a trading platform with slightly lower amounts. 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) for many traders.
The mini lot is equal to 10% of the standard lot (100,000 x 0.10 = 10.000 units). That is 10,000 units of your account funding currency. If you are using a dollar-based account and trading a dollar-based currency pair, each pip price change in your trade would be worth $1.00.
How much is 1 mini lot?
In Forex, 1 mini lot refers to a volume of 10,000 units. So when you buy 1 mini lot of a Forex currency pair, that means you purchased 10,000 units from the base currency. Let’s say that you want to buy EUR/USD and the exchange rate is 1.17. So, when you buy 1 mini lot of EUR/USD you will be making $11,700 worth of purchases.
Micro lots are one of the smallest tradable lot sizes in the forex market. They provide a safe platform for beginner traders to get a good value for money and taste of the industry with a low initial investment, whilst keeping the risk to a minimum.
A Micro lot is equal to 1% of 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, 1 micro lot refers to the volume of 1,000 units. So when you buy 1 micro lot of a Forex currency pair, that means you purchased 1,000 units from the base currency. Once again, let’s say that you want to buy EUR/USD and the exchange rate stands at 1.17. So, when you buy 1 micro lot of EUR/USD you will be making $1,170 worth of purchases.
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. For many traders who want to make the first step into the trading arena, it is 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.
This trading lot consists of 100 base currency units which have a total value of $100 in the case of our US dollar trading example. So, trading with a nano lot size of position means that each pip value in your trade would be worth $0.1 cents.
In Forex, 1 nano lot refers to the volume of 100 units. So when you buy 1 nano lot of a Forex pair, that means you purchased 100 units from the base currency. Let’s say that you want to buy EUR/USD and the EURUSD exchange rate is 1.17. So, when you buy 1 nano lot size of EUR/USD you will be making $117 worth of purchases.
The Forex lot size that works well for you depends on a number of different factors based on how you want to trade forex. Among these is how much money you have to risk, and how much of your money you actually WANT to risk.
Our investment advice is that you have at least $100,000 of trading capital in your account balance before opening a standard trading account, $10,000 for a mini account, or $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.
No need to worry about this just now though!
Once you have completed the HowToTrade Trading Academy, you will find it easy to choose the ideal lot size and know the risk level that is right for you.
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