WHAT IS LOT SIZE
Currency traders use the lot size to specify how much of an asset they want to trade. A lot size is a unit of measure denoting the amount of currency that can be bought or sold per transaction.
There are three types of lot sizes when trading: “standard”, “mini”, and “micro”.
If you are buying a standard lot of a base currency, it is equivalent to 100,000 units.
A mini lot is the equivalent of 10,000 units of the base currency in a forex trade.
A micro lot is the equivalent of 1,000 units of the base currency in a single trade.
A trader who trades in the standard 100,000-unit lot buys or sells ten units of the base currency at a time.
In the past, spot forex was traded with standard lots mainly, but recently non-standard lot sizes are available to traders.
What is a Standard lot?
As per definition, a standard lot represents 100,000 units of a base currency in forex trading. A movement of 1 pip of a standard lot is equivalent to $10 value.
E.g., if you buy $100,000 against the Great British Pound for £1.3700 and the price moves to £1.3750, you would have gained 50 pips. This gain would be worth $500. Similarly, if the price would have fallen 50 pips lower, the loss would have been $500.
What is a Mini lot?
A mini lot is one-tenth of a standard lot, therefore 10,000 units of a currency. When trading with mini lots, the value of pip would be $1.
Beginner forex traders use a mini lot as the risk is lower and the initial capital to trade with mini lots are far less than standard lots. Most brokers only require a minimum of $100 to open a forex account.
What is a Micro lot?
A micro lot is one-tenth of a mini lot, 1000 units of the base currency in forex trading. Micro lots are the smallest units of a currency that a trader can buy or sell.
If you were to buy or sell a particular currency, the value of one pip would be $0.10.
Depending on your trading style and risk management, you can trade any lot size as long as your margin is sufficient in your account. New traders should take caution and limit their losses as far as possible.