What is the forex lot size? How to calculate lots in forex? Lotto is one of the essential concepts that every trader needs to know. This article will learn together what is a lot, how to calculate lots in forex. “Lots” or “Lotto” is an essential concept that represents the volume of trades and the number of money that traders invest in the market. Understanding the lot size in forex will help traders build an effective trading strategy.
Table of Contents:
What’s in forex?
People always have units to convert the number of goods to make calculations more accessible in daily life. For example, the purchase of food per kilogram, water per liter and a lot in forex is the same. In the forex market, currency pairs are considered a commodity to buy and sell and are traded with a specific volume of lots.
A lot or lot in forex is a unit of measurement for a specific amount of currency in a transaction. The lot is the size of a financial contract. In other words, the amount the trader invests will be lower or higher depending on the number of lots traded.
The lot size represents the lot size. Currently, the forex market has three different lot sizes, which are:
- Standard Lot
- Mini lots
- Micro lot
How to calculate the lot in Forex?
1 lot in Forex is equivalent to 100,000 units of the base currency.
Forex Lot Value = Lot Number * Contract Value
For example,:
- 2 lots EUR/USD = 2 * 100,000 euros = 200,000 euros
- 20 lots EUR/USD = 20 * 100,000 euros = 2,000,000 euros
Lots and forex rates have no connection. They operate independently of each other, and the same applies to other financial assets.
What is the relationship between Forex lots and other terms?
What is the relationship between lots and pips in forex?
In forex trading, a lot is a unit of measurement for the trading volume of a currency pair (commodity) and a pip is a unit of measurement for the change in the value of that currency pair.
For example, you buy 1 lot of EUR/USD at 1.2536 (i.e. 1EUR = 1.2536 USD). A few minutes later, the rate rose to 1.2546. This means that the price has increased by ten pips. With a trading volume of 1 lot, i.e. 100,000 EUR, you will earn $10/pip. If the price increases by ten pips, you will make a profit of $100.
What is the relationship between lots and leverage in forex?
If you use your capital only to invest in forex, the profit and loss will be very small.
For example, you use 1,226 USD to buy 1,000 EUR (for example, buy 0.01 lots). When the EUR/USD rate rises to 1.2360, you only earn $10. The profit is too small compared to the capital invested. That’s why forex brokers allow you to use leverage up to hundreds of times. If you use 1:100 leverage, with a margin of $1,226, you are allowed to use an amount of up to 122,600 USD to buy 100,000 EUR. This means that you bought one lot of EUR/USD at 1.2260. Returning to the example above, when the price rises to 1.2360, with a trading volume of 1 lot of EUR/USD, you will earn $1,000.
So, with leverage, you will buy more than you have. In fact, in forex trading, no one is without leverage to increase profits. However, remember, high returns always carry significant risks. Leverage is a double-edged sword, so you should not abuse it.
What is the lot size in forex? Three basic batches
Forex lot size is the term used in financial markets to calculate contract size.
There are three different lot sizes, including:
- 1.00 is referred to as a standard lot, equal to 100,000 units of the base currency.
- 0.10 is referred to as a mini-lot, which is equivalent to 10,000 units of the base currency.
- 0.01 is referred to as a micro-lot, which is equivalent to 1,000 units of the base currency.
What is the standard lot in forex?
A standard lot is the standard unit of measurement in the foreign exchange market, corresponding to 100,000 units of the base currency for each currency pair.
Very few traders can trade with a lot of forex because the investment amount is huge. If you want to trade with a lot of forex, you need to use significant leverage.
Example of a standard lot in forex:
- 1 lot EURUSD = 100 000 EUR
- 2 lots GBPUSD = 200,000 GBP
- 1 lot USDJPY = 100,000 USD
- 3 lots AUDCAD = 300,000 AUD
What is mini forex lotto?
Traders often use mini lots because they can bring attractive profits without too high an initial investment.
The mini lot in forex is equivalent to 10,000 units of base currency (equivalent to 0.1 lots).
Example of Mini lotto in forex:
- 0.1 lots EURUSD = 10,000 euros
- 0.3 lots GBPUSD = 30,000 GBP
- 0.8 lots USDJPY = 80,000 USD
- 0.5 lots AUDCAD = 50,000 AUD
What is Micro Lot in Forex?
Micro lots are the lot sizes that forex traders use the most. This helps to limit trading risks as much as possible, as well as limit losses and leverage.
Therefore, micro lots are especially suitable for new traders.
The micro lot in forex is equivalent to 1,000 units of the base currency or (0.01 lots)
Example of Micro lotto in forex:
- 0.07 lots EURUSD = 7,000 euros
- 0.01 lots GBPUSD = 1,000 GBP
- 0.02 lots USD JPY = 2,000 USD
- 0.04 AUDCAD lots = 4,000 AUD
Conclusion
The article above introduced what lots are, the value of 1 lot in forex trading. The more lots, the higher the trading risk. The higher the trading volume, the greater the profit or loss. For safe trading, traders should use mini lots or micro-lots. Success in trading lies mainly in money management and the proper use of leverage.
