4-What Is A Lot in Forex

3/15/24, 1:39 PM What is a Lot in Forex? - BabyPips.
com
babypips
Preschool How Do You Trade Forex?
What is a Lot in Forex?
Forex is commonly traded in specific amounts called lots,

Partner Center
or basically the number of currency units you will buy or sell. Find a Broker
A “lot” is a unit measuring a transaction amount.
When you place orders on your trading platform, orders are

placed in sizes quoted in lots.
It’s like an egg carton (or egg box in British English). When
you buy eggs, you usually buy a carton (or box). One carton
includes 12 eggs.
The standard size for a lot is 100,000 units of currency, and now, there are
also mini, micro, and nano lot sizes that are 10,000, 1,000, and 100 units.
LOT NUMBER OF UNITS

Best MT4 Broker Follow 6k+ Pro Traders
TRADE NOW
with lowest cost with CopyTrader
https://www.babypips.com/learn/forex/lots-leverage-and-profit-and-loss 1/12
3/15/24, 1:39 PM What is a Lot in Forex? - BabyPips.com
Standard 100,000
Mini 10,000
Micro 1,000
Nano 100
Some brokers show quantity in “lots”, while other brokers show the actual
currency units.
Advertisement
As you may already know, the change in a currency value relative to another
is measured in “pips,” which is a very, very small percentage of a unit of
currency’s value.
To take advantage of this minute change in value, you need to trade large
amounts of a particular currency in order to see any significant profit or loss.
TRADE NOW
Let’s assume we will be using a 100,000 unit (standard) lot size. We will now
recalculate some examples to see how it affects the pip value.
1. USD/JPY at an exchange rate of 119.80: (.01 / 119.80) x 100,000 =
$8.34 per pip
2. USD/CHF at an exchange rate of 1.4555: (.0001 / 1.4555) x 100,000
= $6.87 per pip
In cases where the U.S. dollar is not quoted first, the formula is slightly
different.
1. EUR/USD at an exchange rate of 1.1930: (.0001 / 1.1930) X 100,000
= 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip
2. GBP/USD at an exchange rate of 1.8040: (.0001 / 1.8040) x 100,000
= 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.
Advertisement
Here are examples of pip values for EUR/USD and USD/JPY, depending on
lot size.

TRADE NOW
PIP VALUE PER:
PAIR CLOSE PRICE
Unit Standard lot Mini lot Micro lot
EUR/USD Any $0.0001 $10 $1 $0.1
USD/JPY 1 USD = 80 JPY $0.000125 $12.5 $1.25 $0.125
Your broker may have a different convention for calculating pip values relative
to lot size but whatever way they do it, they’ll be able to tell you what the pip
value is for the currency you are trading at that particular time.
In other words, they do all the math calculations for you!
As the market moves, so will the pip value depending on what currency you
are currently trading.

TRADE NOW

TRADE NOW
What the heck is leverage?
You are probably wondering how a small investor like yourself can trade such
large amounts of money.
Think of your broker as a bank who basically fronts you $100,000 to buy
currencies.
All the bank asks from you is that you give it $1,000 as a good faith deposit,
which it will hold for you but not necessarily keep.
Sounds too good to be true? This is how forex trading using leverage works.
The amount of leverage you use will depend on your broker and what you feel
comfortable with.
Typically the broker will require a deposit, also known as “margin“.

TRADE NOW
Once you have deposited your money, you will then be able to trade. The
broker will also specify how much margin is required per position (lot) traded.
Advertisement
For example, if the allowed leverage is 100:1 (or 1% of position required), and
you wanted to trade a position worth $100,000, but you only have $5,000 in
your account.
No problem as your broker would set aside $1,000 as a deposit and let you
“borrow” the rest.
Of course, any losses or gains will be deducted or added to the remaining

cash balance in your account.
The minimum security (margin) for each lot will vary from broker to broker.
In the example above, the broker required a 1% margin. This means that for
every $100,000 traded, the broker wants $1,000 as a deposit on the position.

TRADE NOW
Let’s say you want to buy 1 standard lot (100,000) of USD/JPY. If your
account is allowed 100:1 leverage, you will have to put up $1,000 as margin.
The $1,000 is NOT a fee, it’s a deposit.
You get it back when you close your trade.
The reason the broker requires the deposit is that while the trade is open,
there’s the risk that you could lose money on the position!
Assuming that this USD/JPY trade is the only position you have open in your
account, you would have to maintain your account’s equity (absolute value of
your trading account) of at least $1,000 at all times in order to be allowed to
keep the trade open.
Advertisement
If USD/JPY plummets and your trading losses cause your account equity to
fall below $1,000, the broker’s system would automatically close out your
trade to prevent further losses.
TRADE NOW
This is a safety mechanism to prevent your account balance from going

negative.
Understanding how margin trading works is so important that we have

dedicated a whole section to it later in the School.
It is a must-read if you don’t want to blow up your account!
Moving on for now…
How the heck do I calculate profit and loss?
So now that you know how to calculate pip value and leverage, let’s look at
how you calculate your profit or loss.
Let’s buy U.S. dollars and sell Swiss francs.
1. The rate you are quoted is 1.4525 / 1.4530. Because you are buying
U.S. dollars you will be working on the “ASK” price of 1.4530, the rate
at which traders are prepared to sell.

2. So you buy 1 standard lot (100,000 units) at 1.4530.
3. A few hours later, the price moves to 1.4550 and you decide to close
your trade.
4. The new quote for USD/CHF is 1.4550 / 1.4555. Since you initially
bought to open the trade, to close the trade, you now must sell in
TRADE NOW
order to close the trade so you must take the “BID” price of 1.4550.
The price that traders are prepared to buy at.
5. The difference between 1.4530 and 1.4550 is .0020 or 20 pips.
6. Using our formula from before, we now have (.0001/1.4550) x 100,000

= $6.87 per pip x 20 pips = $137.40
Bid/Ask Spread
Remember, when you enter or exit a trade, you are subject to the spread in
the bid/ask quote.
When you buy a currency, you will use the offer or ASK price.
When you sell, you will use the BID price.
Next up, we’ll give you a roundup of the freshest forex lingos you’ve learned!
Next Lesson
What is a Spread in Forex Trading?

with lowestWhat to Read Next... TRADE NOW
cost with CopyTrader
Daily Forex News and Watchlist: USD/CAD Chart Art: Quick Pullback Before EUR/JPY’s
Reversal?
2 hours ago
6 hours ago
" Take time to deliberate, but when the time

for action has arrived, stop thinking and go
in."
- Napolean Bonaparte
LEARN FOREX COMPANY FOREX TOOLS
How to Trade Forex About MarketMilk™

TRADE NOW
Forex Quizzes with lowestContact
cost with CopyTrader
Economic Calendar
Forex Forums Advertise Risk-On / Risk-Off Meter
Forex Glossary Newsletter Position Size Calculator
Forex Margin 101 Testimonials "Back to Breakeven" Calculator
Technical Analysis 101 FAQ Pip Value Calculator
Risk Management 101 Subscribe Pivot Point Calculator
babypips
Babypips helps new traders learn about the forex and crypto markets without falling asleep.
We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy
educational content and tools. We're also a community of traders that support each other on our daily
trading journey.
Copyright © 2024 BabyPips.com LLC. All rights reserved.
Privacy Policy Risk Disclosure Terms of Use

TRADE NOW

4-What Is A Lot in Forex

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

4-What Is A Lot in Forex

Uploaded by

Copyright:

Available Formats

3/15/24, 1:39 PM What is a Lot in Forex? - BabyPips.

Preschool How Do You Trade Forex?

What is a Lot in Forex?

Forex is commonly traded in specific amounts called lots,

A “lot” is a unit measuring a transaction amount.

When you place orders on your trading platform, orders are

LOT NUMBER OF UNITS

1. USD/JPY at an exchange rate of 119.80: (.01 / 119.80) x 100,000 =

$8.34 per pip

2. USD/CHF at an exchange rate of 1.4555: (.0001 / 1.4555) x 100,000

= $6.87 per pip

1. EUR/USD at an exchange rate of 1.1930: (.0001 / 1.1930) X 100,000

= 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip

2. GBP/USD at an exchange rate of 1.8040: (.0001 / 1.8040) x 100,000

= 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.

Best MT4 Broker Follow 6k+ Pro Traders

PIP VALUE PER:

PAIR CLOSE PRICE

Unit Standard lot Mini lot Micro lot

EUR/USD Any $0.0001 $10 $1 $0.1

USD/JPY 1 USD = 80 JPY $0.000125 $12.5 $1.25 $0.125

In other words, they do all the math calculations for you!

Best MT4 Broker Follow 6k+ Pro Traders

Best MT4 Broker Follow 6k+ Pro Traders

What the heck is leverage?

Typically the broker will require a deposit, also known as “margin“.

Best MT4 Broker Follow 6k+ Pro Traders

Of course, any losses or gains will be deducted or added to the remaining

Best MT4 Broker Follow 6k+ Pro Traders

The $1,000 is NOT a fee, it’s a deposit.

You get it back when you close your trade.

This is a safety mechanism to prevent your account balance from going

Understanding how margin trading works is so important that we have

It is a must-read if you don’t want to blow up your account!

Moving on for now…

How the heck do I calculate profit and loss?

Let’s buy U.S. dollars and sell Swiss francs.

at which traders are prepared to sell.

6. Using our formula from before, we now have (.0001/1.4550) x 100,000

When you sell, you will use the BID price.

Best MT4 Broker Follow 6k+ Pro Traders

" Take time to deliberate, but when the time

LEARN FOREX COMPANY FOREX TOOLS

How to Trade Forex About MarketMilk™

Forex Forums Advertise Risk-On / Risk-Off Meter

Forex Glossary Newsletter Position Size Calculator

Forex Margin 101 Testimonials "Back to Breakeven" Calculator

Technical Analysis 101 FAQ Pip Value Calculator

Risk Management 101 Subscribe Pivot Point Calculator

Copyright © 2024 BabyPips.com LLC. All rights reserved.

Privacy Policy Risk Disclosure Terms of Use

Best MT4 Broker Follow 6k+ Pro Traders

You might also like