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What is a Lot in Forex Trading?

There are various terms used in forex trading, such as currency pair, exchange rate, quote, spread, and ask price. A Lot is a standard unit of measurement that defines a trade size. In forex trading, the difference in value in a currency pair is measured in pips. Pips are very small, mostly in four decimal places. 

The lot is a larger unit consisting of many pips to make trading viable. Stock market regulators and exchanges are the ones that set lots. Traders use the lot value to determine the amount of money they will invest in each trade. 

Understanding lots

When trading in forex, you either decide to trade through the traditional way or use forex robots. A good place to buy robots online is https://forexstore.com/best-forex-robots so that you benefit from customer service and technical support. The store has a variety of profitable robots to choose from. After purchase, install the robot in the MT platform and open an account with a broker. Once you choose your currency pair. You must decide the value of your trading lot. 

In the simplest term, lot means the total currency units to buy or sell. It measures the transaction amount in a trade. On the trading platform, you cannot say you want to buy $10 or sell $5. Remember, currencies trade in pairs, which means you buy one currency against another.

Think about buying apples or eggs from a store as an example. You will find eggs packed, either 6 or 12 eggs per box/carton. That means you cannot buy one piece of an egg, but it has to be a unit. The value of the box is the value of one egg multiplied by the total number of eggs. In the forex market, such a value is called a lot. Since you cannot buy a single coin or note, the rules are set so that you buy, for example, $20 at a time. Its total value is what is called lot value. 

How do you calculate lot size?

Based on forex market guidelines, lots have a standard size of 100,000 units each. Remember that the difference in value between one currency pair is called pips which is often in decimals. Based on that information, it is easy to learn how to calculate lot size in forex

When pips are multiplied by the standard value of one lot (pip value x 100,000), you get about $10 if you are working with USD. This means if you are buying or selling 10 lots, your total value will be $10×10 = $100. Every trader will not be willing to spend that amount, especially if you are a beginner who is interested in learning the trade first. In this case, the standard lot is divided into smaller units. 

  • Standard: Measured at 100,000 units 
  • Mini: Measured at 10,000 units
  • Micro: Measured at 1,000 units
  • Nano: Measured at 100 units

Some brokers will display the value of your trade measured in lots, but most of them show the value in real currency units. 

How you benefit from lot trading

Volume matters in forex trading if you want to maximize your earnings. You should calculate based on the standard lot, even if you want a smaller lot. Let us assume you want to buy a USD/JPY pair. The first thing to check is the price for USD and JPY. Let us assume the value of USD against JPY is 0.01/119.80. This value indicates the exchange rate. 

Take the value of a standard unit which is 100,000. You will take 100,000 x (0.01/119.80) = $8.34. That means for every lot of USD/JPY, you need $8.34. If you want to buy 50 lots, your value will be $8.34 x 50 = $417. Most brokers will give you information on the minimum investment, such as $20, $50, $100, and so on. They have already calculated the value based on a specific lot size. 

Conclusion

Lot in forex trading is the standard unit of currency to buy or sell. It is the smallest size allowed in trading. To understand the value of one lot, calculate the exchange rate of the currency pair multiplied by the lot amount. 

ABHIYAN
the authorABHIYAN
Abhiyan Chhetri is a cybersecurity journalist with a passion for covering latest happenings in cyber security and tech world. In addition to being the founder of this website, Abhiyan is also into gaming, reading and investigative journalism.