If you are just stepping into the forex trading industry, you might find yourself face to face with some unknown terms, which is a completely ameteur occurrence. During your research, you must have found yourself asking the question, what is a lot in forex? This article will help you understand the term and how it contributes to forex trading!
What is a lot?
The number of lots in a forex transaction mainly refers to the size of the transaction or the trader's trading volume at a given time. In other words, a lot is a unit of measure for commercial value. When you place an order on the trading platform, they place the order according to the size shown on the lot.
B2Prime is a forex liquidity company that has institutional and professional clients across the whole spectrum of the financial markets. Explore more about their market liquidity opportunities!
Why are lot sizes important?
By using a tool such as a risk management calculator or a product-like tool to get what you prefer, you can determine the best lot size based on your current trading account equity, whether you are live or making a practice trade. It also helps you understand the risks.
The size of the trading lot directly affects market volatility, which affects your account. For example, the volatility of 100 points of small transactions will not be as strong as the volatility of 100 points of very large transactions.
Types of lots
The standard lot equates to 100,000 units of base currency.
The mini lot is 10% of the standard lot or 10,000 currency units.
A micro lot is 1% of the standard lot of 1,000 units in base currency.
Nano lot is 0.1% of the standard lot of 1000 base currency units
Micro lots
Micro lots are the smallest trading platform available to most brokers. One micro lot is 1000 units of the new account currency. If your account is funded in USD, this means that the base currency for trading is a USD 1,000 microlot. If you are trading a currency pair based on the US dollar, 1 pip equals 10 cents. Microlot is ideal for beginners looking to use their expertise to reduce risk.
Mini lots
Before micro lots, mini lots were the smallest tradable lots. Mini lots are 10000 units of the currency your account is funded in. If you are using a USD based account and are trading USD based currency pairs, each transaction channel costs approximately USD 1. If you are a beginner and want to start a large number of transactions, make sure you have a good amount of funds.
Standard lot
A standard lot has 10,000 units. If you are trading in USD, this is a USD 100,000 trade. Using this position to trade means that the seller's account value changes by $10 each time the pip is moved. For merchants who have only $ 2,000 in their account, this means that 20 pip move can change their account balance by 10%.
Most traders use mini and micro lots for their trades as it is more on the safe side.
