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Lot and transaction

Concept of

We mentioned earlier that trading volumes are standardized and calculated in lots in financial markets. One standard lot in the Forex market amounts to 1,000,000 (one million) units of the base currency. For example, if we are talking about EURUSD, in a purchase transaction, 1,000,000 (one million) euro will be purchased for the respective amount of US dollars. So, at the purchase price of 1.38997, 1,389,970 US dollars will be required to purchase one million Euros.

Several lots form together a total trade amount. For example, 10 lots is the amount equivalent to 10,000,000 (10 million) items of the currency we need to buy. Brokerage companies also provide an opportunity to operate with fractional (mini- and micro-lots). In particular, the LiteForex Company considers 100,000 as a standard lot and allows traders to open a transaction of 0.1 lots (10,000 units) and 0.01 lots (1,000 units).

Now let’s have a closer look at what a buy-sell transaction is. Every transaction (also called a “round turn”) consists of two counter transactions: opening and closing. When we close a transaction, we perform an operation that is opposite to the opening. For example, if the first transaction is a purchase, then it will be closed with selling, and vice versa: if the first transaction is a sale, then it will be closed with a purchase. We are going to study this subject more thoroughly in the paragraph 2.1. “Price and Spread” in the Section “Technical Analysis”.