Definition
LotA lot is a standardized trade size in forex. One standard lot is 100,000 units of the base currency; mini and micro lots are 10,000 and 1,000 units.
Example
Buying 0.25 lots of EUR/USD means buying 25,000 euros. On this USD-quoted pair, each pip is worth 0.25 × $10 = $2.50.
In detail
Lots give everyone a common language for position size. Instead of saying "I bought 50,000 euros," a trader says "I bought half a lot of EUR/USD." Lot sizes are always measured in the base currency, the first currency in the pair.
| Lot type | Units of base currency | Lot notation | Pip value on EUR/USD |
|---|---|---|---|
| Standard | 100,000 | 1.00 | $10 |
| Mini | 10,000 | 0.10 | $1 |
| Micro | 1,000 | 0.01 | $0.10 |
Some brokers also offer nano lots (100 units), but these are less common. Most platforms let you trade in steps of 0.01 lots, so 0.37 lots (37,000 units) is a valid size.
Why it matters
The lot size you choose directly sets how much each pip is worth, and therefore how much you can win or lose per pip of movement. It also determines your margin requirement.
The sensible order of operations is to decide how much you are willing to risk, then work out the lot size, rather than picking a lot size first:
Lot size = risk amount ÷ (stop-loss in pips × pip value per standard lot)
Example
Assume (illustratively) a trader with a $4,000 account is willing to risk 1% ($40) on a GBP/USD trade with a 25-pip stop-loss. Pip value per standard lot on GBP/USD is $10.
- Lot size = 40 ÷ (25 × 10) = 40 ÷ 250 = 0.16 lots
- That is 16,000 units of GBP, with each pip worth $1.60
- If the stop is hit: 25 × $1.60 = $40, exactly the planned risk
If the same trader had simply chosen 1 standard lot, the 25-pip stop would cost $250, over 6% of the account on one trade.
Common mistake
Beginners sometimes keep the same lot size regardless of stop distance. A 1-lot trade with a 10-pip stop and a 1-lot trade with a 60-pip stop carry very different risk. Use the Lot Size Calculator to keep risk consistent.
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Related terms
- PipA pip is the standard unit for measuring how much a currency pair's price changes: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen.
- Base CurrencyThe base currency is the first currency in a forex pair. The quote shows how much of the second currency is needed to buy one unit of it.
- LeverageLeverage lets you control a position larger than your own deposit by using borrowed exposure from your broker. It magnifies both profits and losses.
- MarginMargin is the portion of your account a broker sets aside as a good-faith deposit to open and hold a leveraged position. It is not a fee.
- Risk ManagementRisk management is the set of rules a trader uses to limit losses, such as capping risk per trade, using stop-losses and controlling total exposure.