A lot is the standardized unit of trade size in forex. Understanding lot sizes is crucial for position sizing and risk management.
Lot Sizes
| Lot Type | Units | Pip Value (USD pairs) |
|---|---|---|
| Standard | 100,000 | $10 per pip |
| Mini | 10,000 | $1 per pip |
| Micro | 1,000 | $0.10 per pip |
| Nano | 100 | $0.01 per pip |
Calculating Position Value
1 standard lot of EUR/USD:
- 100,000 EUR
- At 1.0850 = $108,500 notional value
- Margin at 1:100 = $1,085
Position Sizing Formula
Lot Size = (Account Balance × Risk%) / (Stop Loss in Pips × Pip Value)
Example:
- Account: $10,000
- Risk: 2% = $200
- Stop loss: 50 pips
- Pip value: $10
- Lot size = $200 / (50 × $10) = 0.4 lots
Key Points
- Always size positions based on risk, not gut feeling
- Smaller lots = more flexibility
- Most brokers offer micro lots for beginners
- Use a lot size calculator for precision