If you are a newbie in this trading business, then you have to be well acquainted with different technical terms. In addition being a trader, it is also on your part that you must have the proper knowledge before initiating your trading practices in forex market. In this post, the reader will get to know about the most frequent asked question in forex what is a lot?
It is important to note when a trader is trading in forex market, on that occasion, the person cannot buy lots of $1 as it hardly makes any sense and in addition, no one will be interested in trading with the trader. Therefore there is a thing available in forex trading called “lots.” The concept of lots is more like purchasing a dozen of eggs from a store as no one buys a single egg.
In forex what is a lot of forex trading?
A lot actually refers to a bundle of units used in trading of foreign exchange market. It also refers to the size of the trade which is made by the trader. It is important to mention that in early days of trading the concept of spot forex was so popular and this spot forex was only traded in specific amounts known as lots.
There are different types of lots available in the forex trading market, and they pertain different value. They are:
- Standard lot – 100,000 units of base currency
- Micro lot – 1,000 units of base currency
- Mini lot -10,000 units of base currency
- Nano lot - 100 units of base currency
In order to understand the concept of forex lot, one has to be proficient in ‘pips.' Pip is considered as the smallest increment of any given currency.
For example, if USD/EUR moves from 1.2545 to 1.2546, then it is considered as one pip. The traders are also recommended to calculate pips so that it becomes easier for them to calculate their profit and loss.
So if one micro lot of USD/EUR is being traded by the trader, then each pip will worth around $0.1 in opposition to $10 for a standard lot.
In forex what is a lot (types)?
- Standard lot
This lot is equivalent to 100,000 units of the base currency used in forex trading. It is also similar to trade size.
For an instance, if a trader is looking to buy 100,000 US dollars, in that case, the trader is actually purchasing a standard lot with 100,000 units as his/her trade size.
- Micro lot
Micro lot in forex trading is equivalent to 1/100th of a particular lot or 1,000 units of the base currency. It is also the smallest position size that a trade can trade with.
It also suggests that the smallest trade size which a trader can make can be in multiples of 1k. Traders can also trade 1k, 3k, or 138k as they are in multiples of 1k. And here each 1k is referred as a lot.
So this was the answer to the question of in forex what is a lot?