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Forex 101

What is a Lot in Forex?

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One of the key terms that you are bound to encounter time and again in forex trading is “lot.” Here, we will explain this in more detail so that the next time you trade lots, you will understand exactly what it entails.

Beyond that, we will also examine the various types of forex lots you can encounter when trading with your top forex broker. Some of these will be ideally suited to new traders or those who may want to steer a little on the safer side when it comes to risk management in trading.

Forex Lot Types Explained

In its simplest form, the forex lot, as you know it in forex trading, is simply a measurement of currency units and a way of determining how many currency units are required for a trade.

Forex lots and the terminology their trading are still widely used among almost all of the top trading brokers in the sector. Even though a few now allow for more flexible trading styles, mentioning forex lots is still very prevalent. You will also hear plenty of mention of forex lot and their trading if you choose a new broker and check out some of the best reviews.

With that in mind, there are typically 4 forex lot sizes when trading forex.

Standard Lot – 100,000 Currency Units

The standard size is what you will see most commonly when trading with the standard account types of many forex brokers. The standard lot is 100,000 currency units, so it typically has a value of $100,000 if we take trading in US Dollars as an example.

The majority of experienced forex traders are accustomed to trading at this level and it is worth noting that due to leverage in forex, you do not need to have a full $100,000 in your account to trade a standard lot. When most refer to a lot in forex trading, this is also the typical value they are referring to.

Mini Lot – 10,000 Currency Units

A mini forex lot is a great choice for those who may want to trade with lower or perhaps no leverage at all. This type is again very common, with most top forex brokers offering these types of lots that contain 10,000 currency units, which would have a typical value of $10,000 if trading in USD.

Even though they are referred to as “mini” lots traded at this level, they still represent a significant investment for many traders.

Micro Lot – 1,000 Currency Units

A micro lot in forex is the next smaller step on the trading ladder again. Coming in at just 1,000 currency units means that this value, in the case of our USD trading example, would be just $1000. While micro lots and forex micro trading accounts are available with some brokers, they are not always accessible. However, they provide another ideal platform for new forex traders to get a good, value-for-money taste of the industry. This level can provide an excellent stepping stone for those who may have already tried out a nano account or want to move straight from demo account trading without committing 100%.

Nano Lot – 100 Currency Units

The smallest trading size available is the nano lot. This trading lot comprises 100 currency units with a total value of $100 in the case of our USD trading example. The nano size is again rarer to see but it is certainly still available with many top forex trading brokers. This is an ideal starting lot size for those who wish to try out forex trading for the first time. It offers real money trading beyond a demo trading account but with a much smaller level of risk involved.

Differences Between Brokers

As with everything, there is some room for variation within the forex trading sector. The terms described above are generally used by traders and brokers across the board. You will sometimes see some described in decimal terms in comparison with a standard forex lot as follows:

Mini Lot: 0.1 Standard Lots
Micro Lot: 0.01 Standard Lots
Nano Lot: 0.001 Standard Lots

This is exactly the same thing in the majority of cases. Many brokers also make “cent accounts” available that often cater for the smaller lot sizes in micro lots and possible nano lots. There are also a few brokers that will allow trading with as little as 1 currency unit ($1).

Which Size is Best?

The Forex lot size that works well for you is really dependent on several factors based on how you want to trade. Among these is how much you have to risk, and how much of your capital you actually want to risk. Once you have decided on this, you will be better placed to choose the ideal size for you. You should also remember that you can still engage leverage when trading with smaller lot sizes, though the ratio will not increase.

Typically, as you gain more experience in the forex trading industry, your attitude and willingness to take on slightly more risk lend themselves well to increasing lot size. With this in mind, many would recommend graduating from using a demo account to a nano or micro lot size. Once you have learned the ropes with these, you can move on to the next level.

If you are dealing with a top forex broker, you will also note that many of them may have loyalty, active trader, or rebate programs in place. These often reward traders based on the number of standard lots they trade. Considering that, then, it may be one point to think of when choosing your forex lot size.

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.