What is a lot in Forex
We are building momentum now, aren’t we?
Now let’s discuss what a lot is when it comes to forex trading.
What is a lot?
A lot is the trading language used to distinguish the number of units in forex you wish to buy. it is important when it comes to forex trading for beginners to understand this.
It’s a short-hand saying for 100,000 units trade size.
If you trade 10 lot, that is 1,000,000 in units trade size.
This was used because Forex was only traded in specific sizes.
Thanks to technology lowering the barrier to entry, the lot size has dropped significantly.
You can now trade with as little as 100 units (a Nano-lot).
Here is the table of the lot sizes available:
You can have lots in any kind of multiples, so 5 lots = 500,000 units or 3 micro-lots = 3,000 units.
As traders, it is important to get this nailed on.
We must not take this for granted as a slight extra 0 can add a lot of money if it loses. Most platforms now allow you to pre-define your lot size and remember it so you are not constantly inputting the lot size required per trade.
This is a specific feature, but not mandatory.
Some traders like it, some like to manually input the lot size to ensure there are no mistakes made.
Don’t worry, as students of this course, you will have grasped all of this on a demo account WAY before you put your money on the line.
Demo trading is important because it is all about getting the practice and visual aids already in our heads to execute our ideas quickly and confidently.
Do you think a golfer just turns up to a tournament without practising around the course?
No, they hire a local caddy and get local knowledge of the course as well as practising each hole.
If trading was like any sport, it would be golf. It doesn’t matter how good you are at golf, you can still have terrible golf days.
Anyway, back to the point of what is a lot…
You must be able to work out how much the value is per pip too, this coincides with how much you have to pay between the spread at a brokerage.
This is your cost of trading but also how much you are risking, per pip, and profiting too.
As a general rule of thumb on the EUR/USD it is roughly $10 per pip per 100,00 units (1 lot).
10 Lots = $100 per pip
1 Lot = $10 per pip
0.1 Lot = $1 per pip
0.001 Lot = $0.10 per pip
These are not accurate figures but as guidance, so you can gauge roughly how much per pip you are risking.