What is a forex lot? How to calculate the value of 1 forex lot? After learning the unit of measurement of the movement of the exchange rate – Pip, traders often refer to the unit of lots: how many lots are there in this code? So what are lots? The following article learns about lots – a unit of measurement for trading volume.
Table of Contents:
What is a forex lot?
In buying and selling transactions, people always have a unit to convert the number of goods to make calculations more accessible, such as buying food per kilogram and buying water per liter.
In the forex market, currency pairs are considered a commodity to buy and sell, and traders trade Forex with a specific volume of lots.
A lot (or lots) 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.
What is the forex lot size?
The forex market has three different lot sizes, which are:
- 1 standard lot = 100,000 units of base currency.
- 1 mini-lot = 0.10 lots = 10,000 units of base currency.
- 1 micro-lot = 0.01 lot = 1,000 units of base currency.
What is the standard lot size in Forex?
The standard lot is the standard unit of measurement in the forex market, corresponding to 100,000 units of the base currency for each currency pair.
Very few traders can trade a lot of Forex because the investment amount is huge. If a trader wants to trade a lot of Forex, the trader must use considerable 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 forex size mini lot?
Traders often use mini lots because they can bring attractive profits without too high initial investment capital.
1 Mini lot in forex equals 10,000 units of the 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 the size of the micro lot in Forex?
Micro lots are the lot sizes that forex traders use the most. Micro lotto helps to limit trading risks as much as possible and limit losses and leverage. Micro lots are particularly suitable for new traders.
1 Micro lot in forex equals 1,000 units of the base currency or (0.01 lots)
Example of Micro lots 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
What is the relationship between lots and other terms in Forex?
What is the relationship between forex lots and pips?
Lot and pip help traders calculate profits/losses when trading on the currency markets.
example:
Trader opens a position of 2 lots EURUSD. The price of the currency pair moves by 2 pips in favor, the trader’s profit: 2 lots * 100,000 euros * 0.0001 (value of 1 pip) * 2 (number of pips) = 20 EUR.
What is the relationship between Lot and Leverage?
If a trader opens an account with 1:200 leverage, he can trade the equivalent of an account of $1000 x 200 = $200,000.
So a $1000 account with 1:200 leverage, traders can trade up to 2 lots.
Leverage allows traders to trade larger volumes (or lots) than their actual capital.
Forex brokers often offer leverage from 1:1 (without leverage) up to 1:500 and even higher. Leverage regulations vary from country to country and from broker to broker.
How to calculate the value of 1 forex lot?
1 forex lot for the main currency pair:
Lot value = contract size * trading volume
Example, trader buy USD/CHF:
- Contract size: 100,000 = 1 standard lot
- Trading volume: 1000 base currency = 0.1 standard lot
- USD/CHF exchange rate: – 0.91070
- So, the lot value in USD = 100,000 * 0.01 = 1,000.
- Thus, the value of the transaction is 0.01 lots.
- The trader will buy 9,107 CHF and deposit 1,000 USD
1 forex lot per cross currency pair:
Lot value = contract size * trading volume * asset price / quoted currency price
For example, Trader buys the GBP/CAD currency pair:
- Contract size: 100,000 VND
- Trading volume: 1000 base currency = 0.01 lot
- GBP/CAD exchange rate: 1.72608
- USD/CAD exchange rate:1.32972
- So, the lot value = 100 000 * 0.01 * 1.76028 / 1.32972 = 1 298.08 USD
Conclusion
So the trader already knows: what is the size of the forex lot? What is 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.
