What is a Lot in Forex

In this article, you will learn about lot size and its impact on the value of pips.

What beginners often refer to as a "bet" is actually the lot size or the volume involved in a trade.

Let's dive in.

In Forex trading, "lot" refers to a standardized trading contract, or the number of currency units you buy or sell.

The standard size of 1 lot can be 100,000 base units!

In the past, trading was done only with standard (full) lots, but nowadays, brokers have introduced mini, micro, and even nano lots. The table below describes the number of currency units corresponding to these fractional lots.

With certain brokers, a standard lot can represent more currency units, such as 150,000. The specific number of currency units for 1 standard lot on each currency pair or traded instrument will be outlined in the broker's terms and conditions.

Additionally, brokers may display the amount of traded units in various ways. Some brokers list them in lots, while others show the currency units directly.

For example, trading with 1 Lot or 100,000 currency units is basically the same!

As you know, the change in the value of one currency against another is measured in pips. To take advantage of this change, which is the purpose of Forex trading, you need to trade large amounts of the respective currency to see a significant profit or loss.

Learn more about Forex trading from the Complete Guide for Beginners.

It's time to address one of the most common mistakes in Forex trading!

Many people believe that account leverage affects the value of pips, but in reality, it's the trading volume, or lot size, that changes the value. I'll provide some calculations to illustrate this point!

1 Full Lot example on EUR/ USD

The formula to calculate pips is:

1 pip = 0,0001 * contract size * number of lots .., here’s what it looks like

1 pip = 0,0001 * 100 000 * 1 = $ 10 ,

The result is always in the quote (second) currency of the pair.

If we change the number of lots from 1 lot to 0.5 lots, the pip’s value will change as follows:

Example on EUR/USD with 5 mini lots or 0.5 full lots

1 pip = 0.0001 * 100,000 * 0.5 = $5

1 Full Lot example on USD/ CAD

1 pip = 0.0001 * 100,000 * 1 = 10 CAD

Since the result is in Canadian Dollars (CAD), we will convert it to US Dollars (USD) by dividing the resulting amount by the current USD/CAD exchange rate of 1.3090.

1 pip = ( 0.0001 * 100,000 * 1 ) / 1.3090 = $7,639

Example on USD/CAD with 3 micro lots or 0.03 full lots

1 pips = ( 0.0001 * 100,000 * 0.03 ) / 1.3090 = $0.229

You don't need to do these calculations, everything is done by software, but you still need to know the basics of Forex trading. Practice is the best teacher, so download the trading platform, open a risk-free demo account and start practicing.

In the table below you can see the values ​​of 1 pip on some of the currency pairs, for different lot sizes.

Depending on the current exchange rate, the pip’s values ​​change.

Let's summarise:

• One standard lot is 100,000 currency units of the base currency, one mini-lot is 10,000 currency units, and one micro-lot is 1,000 currency units;
• You don't need to have that amount of money to trade with such volumes;
• Thanks to margin trading and leverage, you can enter Forex trades with a relatively small deposit. However, it's not that simple, so continue learning, testing, and improving your skills.