What is Lot Size In Forex?
Let’s start with knowing about what is lot size in forex? The Forex is traded in specific amounts, and the amounts are called “lot” and can be called the units of currency. Whenever any person places an order on trading hubs, orders are placed in sizes quoted in lots.
These lots are available in different sizes. These can be mini, micro, and nano lots as per standard. Sometimes these lots show their measurement in lots, and sometimes it’s currency. So, the lot in the forex trading program is a unit of measure. The standard size of the lot is equivalent to the 100,000 units of the base currency in forex trade. A standard forex account has a specific lot and pip. Lot is simply security, while pip is the minor currency that can be changed.
Here is an example to understand the lot in forex trading. Suppose a shopkeeper sold out the boxes of bubbles in two different sizes, like 24 and 48. So these are the standard sizes, and once the buyer has come, they don’t expect to buy just one bubble out of the box. This same thing goes for the forex unit. You cannot just buy one unit but have to buy a lot. These lots have come in different sizes that are known universally.
Importance of pip values for lot sizes
In forex trading, lot sizes matter because they directly impact the amount of risk. Therefore, it is highly important to understand the importance of pip for a lot to calculate the profits and losses.
Different sizes of lots
As explained, the different sizes of the lot are available, so let’s define them one by one:
Mini lot in Forex
A mini lot forex is a simple fraction. It is ten percent of a standard lot. So, it means a mini lot worth is 10,000 units. If there is a loss or profit, it will be lower than the standard size. Mini lots are used mainly by beginners.
Micro lot in Forex
It is simply one-tenth of the mini lot. So, it means it is worth 1000 units. It is 1% of the standard lot. It enables the traders to trade in relatively small increments for profit.
Nano lot in Forex
The nano lot is the same as one-tenth of the size of the micro lot. These are ten units of the base currency. It is 0.1% of the standard lot. Most petite lot sizes are used to minimize the risk of a significant loss.
How can the calculation of lot sizes in Forex be done?
You do not need to worry about calculating the lot size in forex trading. The platform in which you are trading will figure it. The only requirement is to be crystal clear while choosing the mini, micro, or nano lot. You can easily calculate this lot size here.
What should be the choice of lot size in Forex?
If you choose the lot, it means you will take the risk. Therefore, you should be careful while selecting the lot. If you choose the greater lot size, you will need to invest more money. It also means you should be prepared for a more significant loss or greater profit. You always remember the units of currency value will depend on the base currency. A more considerable lot can generate substantial profit, but also significant loss can occur. Therefore, your trade will affect your trading strategies and management risk.
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