What is a lot in forex trading?
A lot in forex trading is a unit of measurement that standardises trade size. The change in the value of one currency compared to another is measured in pips, which are the fourth decimal place and therefore very tiny measures. This means trading a single unit isnt viable, so lots exist to enable people to trade these small movements in large batches.
The value of a lot is set by an exchange or a similar market regulator, which ensures everyone trades a set amount and knows how much of an asset they are trading when they open a position.
Lots are subdivided into four sizes standard, mini, micro and nano to give traders more control over the amount of exposure they have.
Understanding lots in forex with boxes of chocolates
Lets say that a company sold boxes of chocolates in two sizes: 12 and 24 chocolates. These are standard sizes and ones consumers have come to expect. They dont often expect to buy just one chocolate out of the box.
Its the same with forex currency pairs. You cant just buy one unit of currency; instead, you buy a lot. Lots come in standard sizes that are universally recognised. For example, you could buy 100,000 lots of base currency GBP for the currency pair GBP/USD. Thats a standard lot. Alternatively, you could buy a micro lot of 1000 GBP.
Forex lot sizes explained
So, how much is one lot in forex? It depends on whether youre trading a standard, mini, micro, or nano lot. Forex trades are divided into these four standardised units of measurement to help account for small changes in the value of a currency.
The following examples all relate to the currency pair EURUSD, which compares the euro (the base currency) against the dollar (the quote currency). For context, if you buy EUR/USD, youre speculating that the euro is going to strengthen against the dollar. If the quote price is currently $1.3000, that means you can exchange 1 for $1.3000. To put it the other way around, you need $1.3000 to buy 1.
What is a standard lot in forex?
A standard lot in forex is equal to 100,000 currency units. Its the standard unit size for traders, whether theyre independent or institutional.
If the EURUSD exchange rate was $1.3000, one standard lot of the base currency (EUR) would be 130,000 units. This means, at the current price, youd need 130,000 units of the quote currency (USD) to buy 100,000 units of EUR.
What is a mini lot in forex?
A mini forex lot is one-tenth the size of a standard lot. That means a mini lot in forex is worth 10,000 currency units. The size of a mini lot means the profit and loss effect is lower than a standard lot.
If the EURUSD exchange rate was $1.3000, one mini lot of the base currency (EUR) would be 13,000 units. This means, at the current price, youd need 13,000 units of the quote currency (USD) to buy 10,000 units of EUR.
What is a micro lot in forex?
A micro forex lot is one-tenth the size of a mini lot. That means its worth 1000 units of currency. Pip movements result in a cash swing of 1 currency unit, eg 1 if you were trading EUR. Micro lots also require less leverage, so a swing wont have as much of a financial impact as with larger lot sizes.
If the EURUSD exchange rate was $1.3000, one micro lot of the base currency (EUR) would be 1300 units. This means, at the current price, youd need 1300 units of the quote currency (USD) to buy 1000 units of EUR.
What is a nano lot in forex?
A nano forex lot is one-tenth the size of a micro lot. Its equal to 100 units of currency. A one-pip movement with a micro lot is equal to a price change of 0.01 units of the base currency youre trading, eg 0.01 if youre trading EUR.
If the EURUSD exchange rate was $1.3000, one nano lot of the base currency (EUR) would be 130 units. This means, at the current price, youd need 130 units of the quote currency (USD) to buy 100 units of EUR.
You can find out more about how to buy currency pairs in our guide to forex trading.
How do you calculate the lot size when trading forex?
You wont normally need to calculate the lot size yourself, as your trading platform should tell you what you need to know. It should be clear when youre placing a trade what options are available standard, mini, micro, and nano and which lot size youre using. You can calculate the overall size of your position by the size of a lot and the number of lots youve bought.
With IG, you can trade standard or micro lots using CFDs. Our platform allows you to toggle between the two before you execute the order.
How to choose lot size in forex
To choose your lot size, think about the risk you want to take. The greater the lot size, the more money youll need to put down or leverage youll need to use and the greater each pip movement will be magnified.
A one-pip movement is worth the following monetary amounts for each lot sizes, assuming youre trading EURUSD:
- A standard lot = $10
- A mini lot = $1
- A micro lot = $0.10
- A nano lot = $0.01
Remember the currency value will depend on the base currency within the currency pair youre trading. As you can see, the smaller the lot, the less a one-pip movement costs. In turn, that means you can have a smaller outlay by trading smaller lots.
How can I start trading forex?
You can trade forex online with us. Before you start, you might want to read our guide to forex and how to trade currency pairs. Once youre comfortable with the basics and how lots in forex work, you can either get started with live trading straight away or create a free demo account to hone your skills.
Plus, with us youll be able to take advantage of forex price movements over the weekend with our Weekend GBP/USD, Weekend EUR/USD and Weekend USD/JPY offerings which some other providers might not offer.
To create an account and trade forex at IG, follow the steps below:
How to trade forex
- Create or log in to your trading account
- Find the pair you want to take a position on
- Decide whether to go long to buy or short to sell
- Confirm your deal size
- Open and monitor your position
When you trade with us, youll use CFDs to go long or short on a currency pairs price. Going long means that youre speculating that the pair will increase in value, meaning that the quote is weakening against the base. Going short means that youre speculating that the pair will decrease in value, meaning that the quote is strengthening against the base.
One main advantage of using CFDs to trade forex is leverage. This enables you to open a position by paying a small percentage of the full value upfront but bear in mind your exposure will be based on the full value of the trade.
Forex lots summed up
To trade forex effectively, you need to understand lots. Heres a reminder of what lots in forex are and why they are important:
- Forex lots are units of measurement. They determine how many units of a currency youre buying
- You can buy four types of lots in forex: standard, mini, micro, and nano
- Your position size is determined by the lot size, and the number or lots you buy or sell