It is evident that forex trading can be very difficult when a trader is new in the industry. It also becomes difficult for them when the person lacks in basic skills and don’t have much knowledge regarding the technicalities of forex trading. But now the readers or the newbie traders don’t have to worry anymore because after this post they will have the subsequent amount of knowledge regarding forex lot types.
I would like to state that lot is one of the most important aspects of foreign exchange trading, and a trader must have to be proficient in it.
Now lets us discuss forex lots with the help of pips.
But before that, it is equally important to mention that each and every currency has its own value and it is also crucial to measure the value of pip for each pair of currency which is going to be traded by the trader.
Now let’s consider USD/CAD at the exchange rate of 1.5900.
As Pip is the smallest increment expected by a trader and 1 pip is equivalent to 0.0001. So in order to calculate value of pip, trader is required to divide the given exchange rate by 0.0001.
So after that the value of pip will be-
0.001/1.5900 = 0.000062890
So now it seems a trivial figure, but it is important to note that while a trader is trading in that occasion, the trader will multiply the obtained value with the value of the lot size.
It is known to almost all the traders that value of base currency unit of standard of is 100,000 US dollars, but forex brokers offer mini trading lots which are having a value of 10,000 US dollars.
So now if the trader calculates the above example in context of lot size then it will be around,
0.0001/1.5900 x $100,000 = $6.289 per pip
Therefore it indicates that along with the movement in market, value of the pip also increases, but it depends on the pair of currency trader is trading with.
The example was given in order to explain traders while practical or real trading they don’t have to measure the figures because it will be done by brokers only. But the trades only to look after the figures informed by their brokers in order to take the right decision at right time.
Now heading towards forex lot types.
There are mainly three types of forex lots, and they are:
- Standard lots
In order to make it simple, when a trader a trading with a standard lot that too USD as his base currency then each pip worth around $10, so when trade goes below 10 pips it indicates that the trader has incurred a loss of $100. These lots are mainly used for institutional sized accounts in which it requires at least $25,000 for initiating a trade.
- Mini lot
It is the best lot to be used for forex trading by any individual and the value of each pip in a trade with this lot worth around $1.
- Micro account
This is the smallest tradable lot size in which every single pip is equivalent to 10 cents.
So these were forex lot types, hope it was helpful for the traders.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.