Forex trading is not an age old concept; its inception was around 3 – 4 decades ago. Now forex trading market has turned up as one of the biggest markets across the globe in terms of regular flow of cash and also in terms of volume. It is important to note that there are lots of technical tools and aspects that have to be followed by a trader while trading in forex market. In this context, forex lot is one of those important aspects that have to be dealt properly.
What is forex lot?
Lot refers to a package of units used in trade. In also refers to the size of the trade a trader is making. In order to make it simple, lot can also be explained as the smallest size in the trade of currency used by the professional traders.
It is equally important to note that the size of lot varies for different currencies, and it is never same for the currencies. For example, in case of US dollars the size of lots is 100,000. So it can be said that whenever the traders enter a trade with their margin account, the smallest amount they can sell or buy is of 100,000, irrespective the size of the margin.
Lot size in forex
Suppose if one lot (micro) for US dollars or Euros is being traded then each pip will be around $0.1 against $10 for a standard lot. There are different quantities used in the forex market, and they are:
- Standard lot = 100,000 units of base currency
- Micro lot = 10,000 units of base currency
- Mini lot = 1,000 units of base currency
- Nano lot = 100 units of base currency
Different types of forex lot
There are different types of forex lot available in the market, and they are discussed below.
- Micro forex lot
There are many brokers available who allow micro lots that one can use to do trading in 1:4 leverage ratios. In simple words, it can be said that for every 1 pip made by forex, the trader can earn 10 percent of profit and will lose 10 percent of amount for the loss of I pip by the forex.
- Mini lots
It is the common tendency of most of the traders that they always look for or expect at least 1 mini lot so that they can make trade along with a mini lot. It is important to mention that the normal leverage ratio in mini lot is 1:40.
- Normal lot
In order to begin a forex account, the normal lot size required is around $10,000. The normal and regular way of trading with normal lot is 1:100 leverage. And it is also true that most of the traders ask different people to open a normal account at least with a least balance of $10,000.
These were little information about forex lot, and hopefully it is helpful in clarifying and explaining some important aspects to deal with forex lots in forex trading market.