What is a forex lot? How to calculate the value of 1 forex lot?

EducationNovember 18, 2021

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What is a forex lot? How to calculate the value of 1 forex lot? After learning about the unit of measurement of exchange rate movement – Pip, traders often refer to the unit of lots: How many lots are in this code? So what are lots? The following article learns about lots – a unit of measurement for the trading volume.

* See more: The complete guide XM from a to z

What is a forex lot?

In purchase and sale transactions, people always have a unit to convert the number of goods to make calculations more accessible, such as buying food by the kilogram and buying water by the liter.

In the forex market, currency pairs are considered a commodity to be bought and sold, 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. 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 lot = 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 measure in the forex market, corresponding to 100,000 units of the base currency for each currency pair.

Very few traders can trade one lot of Forex because the investment amount is enormous. If a trader wants to trade with one lot of Forex, the trader needs to use considerable leverage.

Example of 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 lot size forex?

Traders often use mini lots because it can bring attractive profits without too high initial investment capital.

1 Mini lot in forex is equivalent to 10,000 units of the base currency (equivalent to 0.1 lots)

Example of Mini lot 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 size in Forex?

Micro lots are the lot sizes that forex traders use the most. The micro lot helps it limit trading risks as much as possible and limit losses and leverage. Micro lots are especially suitable for new traders.

1 Micro lot in forex is equivalent to 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 lots AUDCAD = 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 profit/loss when trading on currency markets.

Example:

Trader opens a position of 2 lots EURUSD. The currency pair’s price moves 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, they 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 (no 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 major currency pair:

Lot value = contract size * trading volume

Example, Trader buys 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 transaction value is 0.01 lot.
  • Trader will buy 9,107 CHF and deposit 1,000 USD

1 forex lot for cross currency pair:

Lot value = contract size * trading volume * asset price / quoted currency price

For example, Trader buys 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 forex lot size? What is the value of 1 lot in forex trading? The more lots, the higher the trading risk. The larger the trading volume, the larger the profit or loss.

For safe trading, traders should use mini lots or micro-lots. Success in trading mainly lies in money management and proper use of leverage.

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