
When you enter the forex trading world, you will come across the word ‘lot’ very often.
So, what is a lot?
Simply put, the unit in which you buy or sell currency is called a ‘lot’. A forex lot size is how forex trade is measured.
Exchanges or other forex market regulators set the value of a lot. This helps ensure everyone trades a fixed amount, apart from making everyone aware of how much of an asset they’re trading when opening a position.
Why does it matter to traders?
Having a well-defined risk management plan in place is winning half the battle of trading currencies.
You should be aware of not only the type of risks involved in a trade but also the amount of risk you can take, depending on your trading account. And to effectively manage your risk, you should know how to use forex lot size the right way.
For instance, you might overleverage your account by using larger lot sizes on smaller trading accounts, thereby wiping your account off the map.
Understanding currency pairs
While some forex traders and investors express quantity in actual currency units, others do so in terms of forex lots or lot sizes. To dig deeper into the concept of lots, you’ll need to understand the basics of currency pairs.
In a currency pair, such as USD/JPY or EUR/USD, the primary currency is called the base currency.
For example, the US dollar in USD/JPY and the Euro in EUR/USD are the base currencies. The counter currency, on the other hand, also called quote currency, is the second currency in the pair, like the Japanese Yen in USD/JPY.
When you buy any currency pair, you buy the base currency and sell the quote currency. Similarly, selling a currency pair would imply selling the base currency and buying the quote currency. If you buy USD/JPY, for instance, it means you’re buying the US dollar and selling the Japanese Yen.
What are the types of lot sizes?
In order to give traders more control over how much exposure they have, forex lots are divided into four sizes:
- Nano lot (0.001)– Equal to 100 units of the currency you’re buying or selling, new retail traders with smaller account sizes are more inclined toward nano lots than experienced traders are. Each pip with one nano lot size equals $0.01.
- Micro lot (0.01)– Also popular among relatively new forex traders, it’s equal to 1,000 units of the base currency. Each pip with one micro lot size equals $0.10.
- Mini lot (0.10)– It’s equal to 10,000 units of the base currency. Each pip with one mini lot size equals $1.
- Standard lot (1.0)– It’s equal to 100,000 units of the base currency you’re buying or selling. Talking of standard lots, each pip with 1 lot size in forex equals $10.

How to work out the forex lot size?
Based on risk management, you have to calculate the lot size. Some traders believe in risking no more than 2% of their account on any given trade.
For example, if you have an account of $1,000, and you’re presented with an opportunity having a risk of 20 pips, the ideal lot size would be 0.10 or a mini lot.
This is because 2% of $1,000 is equal to $20, and at the same time, 20 pips at the rate of 0.10 (or $1) also equal $20. In this case, therefore, using a mini lot lets you risk only 2% of your account per trade.
How to calculate profit and loss?
Let’s suppose you’re buying US dollars and selling Canadian dollars (USD/CAD). You are quoted a rate of 1.2471/1.2475 (1.2471 being the bid price, and 1.2475 being the ask price).
Since you are buying US dollars, you’ll be working with the ask price, i.e. the price traders are ready to sell at. So, you buy one standard lot or 100,000 units at 1.2475.
After some time, you find that the new quote for USD/CAD is 1.2520/1.2525, which means that the price has moved to 1.2520. So you decide on closing the trade by selling USD/CAD at the bid price of 1.2520, i.e. the price at which traders are ready to buy.
Now, between 1.2520 and 1.2475, there’s a difference of 0.0045, which is equivalent to 45 pips. Since each pip gives you $10 in one standard lot, you get a profit of 45 pips x $10 = $450.
Let’s try to understand this concept by taking a different currency pair as an example, like USDJPY. This time, imagine that you’ve sold USD/JPY with a micro lot, or a forex lot size of 0.01.
When you enter the sell trade, the price is at 112.000. But later on, it moves to 112.500. This means that you are buying the Japanese yen at a loss.
More specifically, you lose 50 pips on this trade, and hence with a micro lot size, where every pip is equal to $0.10, you will get a loss of 50 pips x $0.10 = $5.
Want to learn more?
Now you know what is a lot, the different types of trading lots, and how to work out your profit and loss. We bring extensive educational resources to help traders learn more, understand the market better, and improve their trading skills. Check out our trading guides here.