Believe it or not but most beginners that start trading real money don’t even grasp this concept of forex lot sizes.
Yet one small decimal place mistake can have grave consequences.
That is why it is important to understand what is a lot size in forex trading for beginners, to avoid careless mistakes and protect your capital!
In this article, we are going to break down the question “what is lots size in forex” and help you understand this fundamental concept when trading forex.
After reading this article you should understand what is lots size in forex now and hopefully avoid the careless pitfalls many traders make by inputting too much or too few lot sizes.
So, if you are just a beginner and this is the first time you are reading about what is a lot size in forex or someone who struggles to remember, then this article should be perfect for you.
What Is A Lot Size In Forex?
So, what is a lot size in forex?
Lots are the number of currency units you want to trade.
It has been used because previously, spot forex was only traded in specific amounts – hence the name lots.
Back in the past, when trading required larger capital to trade with, lots were used to standardise the units.
For example, the standard lot size is 100,000 units of a currency value.
So, if you wanted to trade 1 lot of the EUR/USD this would be €100,000 euros worth.
Echoing the above, back in the past trading 1 lot would generate a return based on the pip value (which is also extremely important to understand).
Whereas nowadays we have leverage, which allows the broker to loan you the difference based on the margin you put up.
With leveraged trading opened up the world to different lot sizes, because nowadays you can start with $100 easily and start trading.
This introduced 4 new types:
- Nano Lot
- Mini Lot
- Micro Lot
- Nano Lot
Let’s look at these in more detail:
Forex Nano Lot
A nano lot is the name given to a trade size that is 1/1000th of a standard lot.
The value of a nano lot is 100 units, or $100, and is the lowest lot you can trade.
This is where most beginners start when selecting a recommended lot size because the lot value is very low.
In fact, the value of each pip is $0.01, so every up or down movement when trading with a nano lot, you are making (or losing) 1 cent a time.
This trading size will not make you a millionaire overnight, but it’s good to test the water in a live trading account when you start trading forex for the first time.
This is how most forex traders learn how to become a day trader with $100.
However, not all brokers offer nano lot trading accounts.
Forex Micro Lot
The next level up from a nano lot is the micro lot which is 1/100th of a standard lot.
So the value of a micro lot is 1,000 units.
Or if you are trading in dollars it’s $1,000 and is the second-lowest lot size you can trade.
On the EUR/USD the pip value of a micro lot is around $0.10, so every time the market moves up or down 1 pip, you generate 10 cents profit (or loss).
The micro lot is 10 times higher value than the nano lot and serves as a great entry-level for beginners who wish to start trading with very little money.
Most brokers offer a micro lot trading account too.
Forex Mini Lot
The next highest lot from a micro lot is the mini lot.
This was the original “smallest” lot before technology and derivatives took over the forex to bring more people to the markets easily.
The mini lot is 1/10th of a standard lot and has a value of 10,000 units.
This means you will have control over $10,000.
The pip value is around $1 on the EUR/USD, so every time the market goes up or down, you make or lose $1.
Traders that want to take on more risk, but have a small trading account will be recommended this lot size.
Forex Standard Lot
The final forex lot size when it comes to terminology is the standard lot.
This is the original entry point for forex traders (way before leverage was introduced).
This is 100,000 units, or $100,000 lot size.
The value of a pip for a standard lot is around $10 per pip based on the EUR/USD.
So you will lose or gain $10 for every pip the currency pair moves.
Trading a standard lot requires some margin, which can be different depending on which broker you have and which country you are trading from.
The standard lot size is suitable for traders that are consistently profitable and are seeking to add more value from the pips they generate.
A Quick Forex Lot Size Chart
Here is a simple forex lot size chart to help you with understanding the value of each forex lot sizes.
The forex lot sizes used below are based on trading the EUR/USD, so the value will vary from each currency.
|Forex Lot Sizes||Value in Dollars||Decimal||Value Per Pip In Dollars|
|5 Nano Lots||$500||0.005||$0.05|
|5 Micro Lots||$5,000||0.05||$0.50|
|5 Mini Lots||$50,000||0.5||$5.00|
|5 Standard Lots||$500,000||5||$50.00|
As you can see from the forex lot size chart above, it’s pretty simple to understand once you see it written down clearly.
To help illustrate the difference in lot sizes, you can see the difference between the lot sizes in forex in the image below:
How To Calculate Lot Size In Forex
This is the beauty of standardisation; you don’t need to learn how to calculate lots in forex at all.
However, if you really must then you can use this formula
Value of Lot * 100,000 = How many lots.
1 lot * 100,000 = 100,000 units
2 mini lots (0.2) * 100,000 = 20,000 units
5 nano lots (0.005) * 100,000 = 500 units
Fairly straightforward, but every broker will do this for you automatically.
All you need to know is how much you want to trade.
You do however need to understand the value of the pip, based on the lot size.
To do that you simply follow this formula:
(value of pip/current rate) * lot size.
So, if you wanted to trade the EUR/USD, you would apply the formula like this:
Most currencies value of a pip is 0.0001, with a couple of exceptions, so let’s go through a quick example of a 0.0001 value
(value of pip = 4 places behind decimal place/1.1660) * 1 lot (100,000 units)
(0.0001*1.1660) * 100,000 = $11.66 per pip.
So if the market moves 10 pips in your favour, you will be $116.60 in profit.
Or to make it so it’s a mini lot you change the 100,000 to 10,000 units (mini=10,000).
(value of pip = 4 places behind decimal place/1.1660) * 1 mini-lot (10,000 units)
(0.0001*1.1660) * 10,000 = $1.16 per pip.
This can be replicated all the way down to the nano-lot.
To make it easier to understand, because it can be complex, let’s do it again but for a different pair.
This time USD/JPY.
The USD/JPY pip value is 0.01 – this is where we look to see how many pips the currency pair has moved.
So, let’s input the formula below:
(value of pip = 2 places behind decimal place/121.90) * 1 lot (100,000 units)
(0.01*121.90) * 100,000 = $8.20 per pip.
Does this make sense now?
How much is 0.01 lot size in dollars
0.01 is a micro lot in forex which is 1,000 units of currency.
So 0.01 lot size would be around $1,000.
The value of the pip for a micro-lot is roughly $0.10 based on the EUR/USD.
This is usually the value most beginner traders start with. It is enough for you to risk some capital, but not enough for you to panic when the market goes against you.
In fact, we recommend that traders move on to this trading size and away from a demo account as soon as they are comfortable.
How much is 0.1 lot size in dollars
0.1 is a mini lot in forex which is 10,000 units of currency.
So 0.1 lot size would be around $10,000.
The value of the pip for a mini lot is roughly $1 based on the EUR/USD.
Traders that use mini lots are now more adapted to the markets and are looking to grow their capital further by taking on more risk. The “training wheels” of the micro-lot have been taken off.
How much is 1 lot lot size in dollars
1 lot in forex is 100,000 units of currency.
So 1 lot size would be around $100,000.
The value of the pip for 1 lot is roughly $10 based on the EUR/USD.
Traders who trade in lot sizes are usually experienced and comfortable with the risk associated with it.
Although it’s still not a significant amount – in a place where the markets can be unpredictable – it’s still seen as the standard trading size across the world.
What is 5 lots in forex
5 lots in forex are 500,000 units of currency.
The value of the pip for 1 lot is roughly $50 based on the EUR/USD.
Now if you are trading 5 lots in forex, then you certainly have a decent trading account size to take on larger risks and larger rewards.
How much is 10 lots in dollars
10 lots in forex are 1,000,000 units of currency.
This equates to around $1,000,000 worth of currency you would be trading.
The value of the pip for 1 lot is roughly $100 based on the EUR/USD.
What Is The Best Lot Size In Forex?
There is no best lot size in forex because it depends on your account value.
Someone with $100,000 dollars in their account would not open a nano lot to trade.
With that being said, here is a quick rundown on the recommended lot sizes for trading accounts.
If you have around $500s in your account then a nano lot is ideal for this trading account.
If you have around $1,000 to $1,500 in your trading account, then a micro lot is ideal to trade with.
If you have $5,000 to $10,000 deposited in a trading account, then a mini lot is a recommended lot size.
If you have anything above $15,000+ then the recommended lot size is a standard lot.
These recommended lot sizes can vary from country to country due to different brokers offering different leverages.
Wrapping it up
Hopefully, you’ve come to the end with an understanding of what is lots size in forex trading.
Now you’ve read through the basics of what is lots size in forex and how to calculate them, you can eliminate the simple, yet costly mistakes eager traders do and finally focus on collecting them pips!
The beauty of modern-day trading platforms is that they remember your preferences when it comes to trading, so if you want to trade 0.5 lots then you can allow the system to remember your choice – this speed up trading whilst eliminating careless mistakes.