What is a Lot?
In forex trading, a lot is the standardized unit used to measure the size of a trade. When you open a position in the currency market, you are buying or selling a specific number of currency units — and that quantity is expressed in lots.
Think of lots like boxes at a wholesale store. Instead of buying one item, you buy in bulk. In forex, a single standard lot equals 100,000 units of the base currency. This standardization allows brokers and traders worldwide to communicate trade sizes clearly and consistently.
Understanding lot sizes is one of the first essential skills for any forex trader, because it directly determines how much profit or loss you make per pip movement.
Types of Lots
There are four main lot sizes in forex trading:
| Lot Type | Lot Size | Units | Pip Value (EUR/USD) |
|---|---|---|---|
| Standard | 1.00 | 100,000 | ~$10.00 |
| Mini | 0.10 | 10,000 | ~$1.00 |
| Micro | 0.01 | 1,000 | ~$0.10 |
| Nano | 0.001 | 100 | ~$0.01 |
Standard Lot: The original and largest common lot size. Each pip movement in EUR/USD is worth approximately $10. Suitable for experienced traders with larger accounts.
Mini Lot: One-tenth of a standard lot. A pip is worth about $1. This is the most common size for intermediate retail traders.
Micro Lot: The smallest widely available lot size. A pip is worth only $0.10 — ideal for beginners practicing live trading with minimal risk.
Nano Lot: Offered by some brokers, nano lots let you trade with extreme precision and minimal capital exposure.
Lot Size Calculator
Choosing the right lot size is critical for protecting your capital. Use this formula:
Lot Size = (Account Balance × Risk %) ÷ (Stop Loss in Pips × Pip Value per Micro Lot)
Practical Example:
- Account Balance: $1,000
- Risk per trade: 2% = $20
- Stop Loss: 40 pips
- Pip value per micro lot (EUR/USD): $0.10
Calculation: $20 ÷ (40 × $0.10) = $20 ÷ $4 = 5 micro lots (0.05)
This means you'd trade 0.05 lots and risk exactly $20 if the trade hits your stop loss.
Position Sizing Tips
Proper lot sizing is the foundation of long-term trading survival:
- Start with micro lots: Even experienced traders use small lots when testing new strategies.
- Never risk more than 2% per trade: This gives you 50 losing trades before losing your account — plenty of time to learn and adjust.
- Wider stops = smaller lots: If your stop loss is 100 pips, you must trade a smaller lot than if it's 20 pips, to keep the same dollar risk.
- Scale up gradually: Increase your lot size only when your strategy proves consistently profitable over at least 50 trades.
- Use a position sizing calculator: Many platforms and websites offer free calculators — use them every time before entering a trade.
Mastering lot sizes transforms you from a gambler into a trader with a defined, measurable edge.