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Lot is a very important concept in Forex trading. It represents the size of a trade or the number of currency units at a given time. The lot size is also a very influential thing and this number is variable. The size of the lot affects the traders’ risks, therefore, it is very essential to be fully aware of this concept before making any kind of action in the trading process. No one should take the Forex lot size for granted because it can ruin even the best strategy if one doesn’t realize its importance.
Mainly there are four types of lots according to their sizes. The higher the lot size the greater the number of risks one is going to take while trading. Different lot sizes offer different product types. That’s why one should take thorough consideration while choosing the appropriate size of the lot. There are some tools that might help people estimate the best lot sizes for them according to their trading account assets. An example of such kind of tool is a risk management calculator that is very beneficial in any case, no matter a trader is just practising or having a real trading process on the live account. That tool can help people analyze their risk opportunities and determine the exact amount they wish to invest.
The lot size you are trading with can determine much a market move will influence your accounts. For instance, a 200 pip move will not be felt in the case of the small lot size, however, the same amount will make great sense in a large-sized lot. The Forex lot size chart includes Standard lot, Mini lot, Micro lot, and Nano lot. Each of them has its own characteristics and features that need to be considered by the investor before he starts to trade. We will further explain the different lot sizes and analyze each of them in a detailed way.
All FX Lots Listed and Explained (With Examples)
Sometimes it’s hard to understand what each of the Forex lots represents, especially for the beginners who are new to the market and don’t understand the meaning of the concept. This is why we’re going to explain each FX lot thoroughly down below.
Standard Lot
The standard lot is a 100,000 unit lot in the Forex market. It is one of the most popular lot sizes. This equals $100,000 in dollars. Standard lot represents that a one pip move in the market will cause a 10$ change. For example, if one has invested the minimum amount of capital which is $2000, it means that in every 20 pip move he can make a 10% change in profit on his account balance. However, in many cases, traders with small accounts don’t choose this type of lot size.
Mainly the experienced traders select the standard lot size. Besides, it’s important to mention that you don’t have to invest $100,000 capital in order to trade with this lot size because the Forex lot leverage in the Forex market allows people to start trading with the lower amounts.
However, Forex traders mostly use mini lots and micro-lots. The main reason is that they want to obtain a reasonable lot size in order to carry on trading in a long run and protect their initial trading investment.
Micro Lot
Micro lot is the smallest possible lot size that represents 1,000 units of your currency. If you have chosen to fund in U.S dollars, then the Micro lot means that the trader buys or sells $1000. Because of this small amount, people who don’t have enough experience in the market often choose to trade with micro lots as they want to maintain low risks and to reduce the chance of the downside.
Forex micro lot account is selected when investors’ preferences are not met with the Mini or the standard lot sizes. Besides, it’s important to note that ten micro lots are the same as the one mini lot (10,000 units). The same logic works on the other cases as 10 mini lots represent one standard lot.
As we have already mentioned, the small size of the micro-lot gives investors an opportunity to better manage their trading risks. For example, if an investor has $700 in their account and the leverage ratio is 1:200, a 5 pip movement in the market against the investor will cause a loss of 10% of their account. Everything changes in seconds so no one knows what the market performance will be like. So this is why it’s very important to trade with low risks and a small amount of capital.
Mini Lots
Mini lot equals 10,000 units of your account funding currency. If you have selected to fund in U.S dollars, then each pip will have a worth of $1.00. It’s important that the investor should be well-funded before they start to trade with the mini lots. This Forex broker’s lot size is dedicated mainly to beginner traders because it limits the potential capital losses which means that there is a low risk of the downside.
On top of that, the mini lots are also beneficial for professional traders because it allows them to make multiple bets. A $1.00 per pip may look like a small number, however, the Forex trading market performance might show 100 pips movement in a day or even in an hour. Sometimes if the market goes in the wrong direction, these numbers can cause a $100 loss in the investor’s account. So they should decide on their own if they want to risk their funds or not. Besides, one should always consider the fact that the minimum reasonable capital trading with the Mini lots account is 2000 USD.
Nano Lot
There is another alternative in the Forex lot size table including the Nano lot. This is the smallest lot size that is available in the Forex market. The latter represents 100 currency units that have a value of $100 in case of trading in the U.S dollars. This means that one pip of a move will result in only a $0.01 change when trading a Nano lot.
This type of lot is very rare but it is still represented by the best Forex trading brokers. If the trader is the new one in the market and doesn’t know how the industry works, Nano lot is the best way to try out new strategies without putting a big amount of capital at risk. So this is the perfect lot size for beginners. It offers a demo trading account, however, the main difference is that the trading money is real, though the risk level is maintained to be very low.
It’s important to mention that some Forex brokers set nano lot to 10 units, not 100. This highlights the same fact that the small amount of funds is an opportunity to test platforms and strategies for the newcomers.
Most Suitable Lot for Beginners
It’s very hard to say which is the most suitable lot for beginners because it depends on their preferences, priorities, and goals.
If a beginner trader is well-funded they can start trading with the standard lot because it will give them a chance to generate profit in the fastest and easier way. However, as we know everything has two sides. Trading with the standard lot takes good risk management skills. High leverage levels mean that one can gain profit as fast as one can experience loss. So the investor should be very precautious and control each action attentively for the trade to be successful.
In addition to this, if a beginner trader doesn’t have enough capital to invest, they can start trading with the Forex mini lot. This is because in many cases risk is a very hard control in the Forex market and it requires the market knowledge and experience to fully assess the situation. So starting with a small amount will help them avoid the risk of the downside.
Besides, as we have already mentioned, the Nano lot is also very beneficial for the newcomers as it allows them to trade with only 100 currency units and sometimes even 10 units. This is like the demo account that enables traders to find out all kinds of information about the platform and develop new strategies. However, this lot is very rare to find, therefore, investors are recommended to consider the above-mentioned options as well.
Using Leverage to Your Advantage
Leverage is a trading tool that gives people a chance to generate a great deal of profit with a small amount of capital. However, it also means that you can lose a considerable amount of money with a high level of leverage.
The average level of leverage in the Forex market ranges from 50:1 to 100:1 or more. Using leverage can be very efficient as it has the potential for good capital growth. It reduces the number of trading capital that must be used while trading. Even though it requires skills and experience in the forex market, it’s important to note that leverage can be used as an advantage and a beneficial tool for generating a high amount of profit.
Leverage is very advantageous while trading with the Forex standard lot because with the high leverage you don’t have to invest $100,000 capital in order to trade with this lot size. For example, if you use the 1:100 leverage ratio you only pay $1000 to open the position. Due to the Forex leverage, trading with the standard lot is not connected to the struggles and it doesn’t necessities to be well-funded in order to start trading.
So these facts highlight that if an investor has some knowledge of the Forex market, they can use leverage to their advantage and gain a big amount of profit with the small number of base capital.
The Bottom Line
As we already discussed in the article, the lot in Forex trading represents the size of a trade or the number of currency units at a specific time. It is a very essential concept and every trader should consider all kinds of possible lot options before selecting one.
There are four major options in the Forex lot size chart including Standard lot, Mini lot, Micro lot, and Nano lot. Each one has its own features and characteristics that should be read attentively by potential traders. Some of them are dedicated to the newcomers, however, some are a perfect match for the professional traders.