What is Forex lot size and is it calculated?
Table of contents
A lot in Forex refers to a specific amount of money that traders use for positions. In modern-day Forex trading, there are various different sizes of lots available. The standard lot in Forex trading equals 100,000 units of a currency. Depending on the broker you are using, you will have access to numerous types of lots.
To put it simply, you will have a standard lot if your position size is 100,000 currency units. Other Forex lot sizes include mini, micro, and nano. Understanding the differences in lot sizes can be very helpful for traders. If you want to learn more about this matter, follow our Forex lot size guide as we discover everything that there is to know about lots.
Forex lot definition and different types of it
To get the most out of Forex trading, beginners are advised to learn about different types of terms and acronyms that are used in this market. One of those terms that every trader should know is the Forex lot. The ability to choose different types and sizes of lots can have a significant influence on your success in Forex trading.
In modern-day Forex trading, there are numerous different types of lots available. In fact, there are some brokers who offer specifically created amounts of lots to traders. The aim behind this is to make trading more accessible for everyone. According to Forex lot value, these are the most popular Forex account lot sizes:
- Standard lot
- Mini lot
- Micro lot
- Nano lot
The standard lot, as we have already said, equals 100,000 units of a certain currency. The mini lot stands for 10,000 units of a currency, while a micro lot is 1,000 units of a currency. The smallest, nano lot, equals 100 units of a currency.
There also are so-called partial lots, ordinary lots, and round turn lots in Forex. The partial lot occurs when a trade is opened with a buy order for a standard size lot but closed with a sell order that is only half of the buy order. The regular lot is an ordinary trade that is opened or closed with a lot of the same size. While the round turn lot occurs in trading when a position opens the buy trade and then closes whit a sell trade.
Sign up for AvaTrade Standard lot
Forex lot meaning – How can it influence your trading?
The amount of Forex lot you are using might show you how sensitive your positions are on major market developments. Let’s say that there is a 50-pip move in the market, this will be barely noticeable on a small trade, however, it could be very much visible on larger trade. Below, we will have lot sizes explained and discuss the tips that we have for traders.
If you are using Forex micro lot account, you might already know that it is the smallest account that you can get. The micro-lot, as we have already said, equals 1,000 US dollars, or any other currency unit. This means that the cost of one pip would be 10 cents in this account. Such a low lot is a great option for those who are just getting started in Forex trading and prefer to build some skills without risking too much.
The Forex mini lot equals 10,000 currency units, in terms of pips, the cost of one pip with a mini lot would be 1 US dollar. In the Forex trading market, it is considered that the Forex standard lot is the most popular one. The standard lot account is a 100,000 unit account.
For beginner traders, it is advised to start using smaller lots to make sure they have time for growing as traders. Once you gain enough skills and knowledge in Forex, you can move on to using higher lot sizes. If you want to further increase the size of your lot, you can use higher leverage. Although for beginners it is not recommended to use high leverage, many experienced traders enjoy using leverage very much.
Forex lot size formula – How can it be calculated?
We have already provided you with general information about Forex lot sizes. However, many people are interested in how to calculate the size of the lot. For this, a great thing would be to use the Forex lot size formula, which is:
((Percentage x Margin) ÷ Pip Amount) ÷ 100k = Lot Size
Although there is a formula that you can use to calculate the amount of a lot, you do not have to use it every time. You can use a Forex lot size chart or different types of calculators and let it do your job. Many brokers also offer very detailed information about the lots, which means that you won’t have to worry about it at all. That said, for understanding Forex trading lot definition better, it is a great idea to learn how it is calculated.
Forex lot explained – Trading volume
In Forex trading, volume refers to the total amount of your trades including in the trading position. In many cases, Forex traders are using volume to pre-determine the size of their positions. There is a formula to calculate the volume of the trading, it is the exchange rate multiplied by the Forex account lot size.
However, depending on the type of lot that you use, the formula varies. While using a partial lot, your first buy position will give you 1 lot at first. When you close only half of the lot, you will gain 0.5. If you end up being successful, when these two are combined, you will end up with 1.5 lots of trading volume.
The round turn lot will also give you 1 lot to buy a position. You will also be given one more to sell the position, overall, you will end up with 2 lots in the trading volume. As for the regular lot, you will be given 1 lot for the trading volume for the buying positions. No more lots will be added until the position is closed.
How can different Forex brokers’ lot sizes influence you?
When it comes to Forex trading and lot size definition, one thing that not many understand is how the size of a lot can actually influence you and your trading experience. Beginner traders, in most cases, are recommended to use smaller lot sizes and not mini or standard lots.
This happens because newcomers are not encouraged to use a huge amount of money for trading in the beginning. Beginners are more likely to start trading with smaller budgets which is why nano and micro-lots are usually used by amateur traders. On the other hand, Forex’s large lot size is used mostly by experienced and well-skilled Forex traders.
As you gain more experience, you can move on to using a higher lot. If the lot size is not enough for you, most of the Forex brokers will also offer you using leverage to increase your profits. But, it should be noted that leverage also increases the risks of trading. This is why traders are encouraged to start trading with lower leverage.
Trade with low leverages on XM
What determines Forex account lot size?
When it comes to Forex lot sizes, the standard lot size in a currency pair is a constant, pre-determined value. As you already know, it equals 100,000 base units of the currency pairs. Although the lot sizes stay the same, traders have the ability to choose which one they want to use according to several different factors.
First of all, traders should assess the risks that might come with the position. If you think that the position is not worth too much, it would be better to go with a low Forex lot cost. The amount of lot that you use can also depend on the volatility of the market, the amount of money that you have deposited, and the leverage you are using.
Final thoughts on Forex lot size
To put it simply, a lot is the unit of measurement. It is mostly used to determine how much of the base currency is traded. There are different sizes and types of lots available in the Forex trading market, and the amount of it varies from 100-100,000.
The standard lot in Forex trading equals 100,000 units of a currency, a mini lot stands for 10,000 units of the base currency, a micro lot is 1,000 units, while a nano – 100. Understanding the differences between lot sizes can be very helpful for traders since it represents a very important part of Forex trading.
Comments (0 comment(s))