How much is a lot in forex? – Trading in the forex world happens in multiples of lots. If you’re unsure about the lot size, you cannot determine how much to trade and how much leverage you have to take.
It is essential to find the answer to the question of how much is a lot in forex? Once you know the answer, planning your trades become easier. It also ensures that you do not undertake excessive leverage. We will today answer this question once and for all.
How much is a Lot in Forex?
There are four different lot sizes in Forex. The size of the lot refers to the number of currency units you are trading. Let us now look at all the lot sizes below.
1. Nano Lot:
The nano lot refers to 100 units. When trading in nano lots, you are trading 100 units of currency. It is the smallest lot size available.
2. Micro lot:
Micro lot means you are trading in 1000 units of currency. Both of these lot sizes can be covered by your capital in most of the cases.
3. Mini lot:
When you’re dealing in the mini lot, you’re dealing with 10,000 units of currency. Since the amount at stake is on the higher side, you might have to opt for leverage to trade the mini lot.
4. Standard lot:
A standard lot is generally for intermediate and expert traders. It involves 100,000 units of currency.
You can trade in multiple lots rather than just a single one. Not all lot sizes are available with all forex brokers. It is essential to look at the lot size available with your forex broker before making a trading call.
The Importance of Lot Sizes:
The lot size does not just determine the capital at stake but also the profit you make on the change of a single pip. We will explain the same below. For example:
If you opt for a standard lot of USD/JPY, assuming the exchange rate is around $120, each pip is worth $ 8.33. The calculation is as follows:
(0.01/ 120) x 100000 = $ 8.33
In the standard lot, in the above example, if you make a ten pip profit, it will result in $ 83.33.
If the lot size decreases, the multiplying factor will decrease. So will the profit. The lot size has a significant impact on your profit.
Importance of lot Size for Leverage:
Another parameter is the leverage. If you deposit $ 10,000 in your account and go for the standard lot size of USD/JPY at $ 120, you are trading currencies worth $ 1,20,00,000. The broker will lend the rest of the money as leverage. The larger the lot size, the higher the leverage you will require.
Similarly, if you go with the mini lot in the above example, the leverage required will be 1/10.
Without understanding the lot size, you cannot plan your trades appropriately and might undertake a lot of risks. On the other hand, if you play very safe, you might not make a significant amount of return. So, to achieve the right balance, it is crucial to understand the lot size. It will help you calculate the quantum of the amount you are trading in. Accordingly, you can calculate your probable loss and profit.
Now that you are aware of the lot size, it is time to look at the concept of social trading. Our platform allows you to indulge in the same. You have to mimic other traders rather than create the strategy. You can trade in the lots you prefer rather than mimicking them completely.
Whether you are following social trading or developing your strategy, knowing the lot size is imperative while trading in the forex markets.