HOW MUCH IS LOT.

HOW MUCH IS A LOT?

One of the first concepts you need to understand as part of your Forex trading training are standard lots and micro lots; what are they and what’s the difference between them?

What is a Forex lot?

A standard Forex lot is equal to 100,000 units of the base currency so in the case of EUR/USD is EUR 100,000.

The average pip size for a standard lot which is quoted to 4 decimal places is 10 of the counter currency, so in this case $10. If you are down 10 pips on a standard EUR/USD contract you have lost $100.

Pip Movements (e.g. EUR/USD @ 1.28205):

5th Decimal Place (Micro pip movement) = 100,000 (1 Lot) x 0.00001 = $1.00 P&L

4th Decimal Place (1 pip movement) = 100,000 (1 Lot) x 0.00010 = $10.00 P&L

3rd Decimal Place (10 pip movement) = 100,000 (1 Lot) x 0.00100 = $100.00 P&L

2nd Decimal Place (100 pip movement (Big Figure)) = 100,000 (1 Lot) x 0.01000 = $1,000.00 P&L

1st Decimal Place (1,000 pip movement) = 100,000 (1 Lot) x 0.10000 = $10,000.00 P&L

Pip Movements (e.g. USD/JPY @ 76.850):

3rd Decimal Place (Micro pip movement) = 100,000 (1 Lot) x 00.001 = Y100

2nd Decimal Place (1 pip movement) = 100,000 (1 Lot) x 00.010 = Y1, 000

1st Decimal Place (10 pip movement) = 100,000 (1 Lot) x 00.100 = Y10, 000

Big Figure move = 100,000 (1 Lot) x 01.000 = Y100, 000 let’s take another example in the form of USD/JPY.

The standard lot size is USD 100,000 as USD is the base currency. As USD/JPY is quoted only to 2 decimal places then a pip is equivalent to JPY 1,000 so if you are up 10 pips on a standard USD/JPY contract you have made JPY 10,000.

Standard lots in forex are usually for institutional sized accounts; we’re talking big rollers, who should have $25,000 or more to make trades using standard lots.

Remember that the standard lot size is $100,000 and for mini lots the standard size will be $10,000

Example: You buy 2 lots of EUR/USD at 1.1205 and sell at 1.1210 P/L = (1.1210 – 1.1205) x 100,000 x 2 = $100

Whenever you have an indirect quote [where the quote currency is NOT USD] you can calculate your profit and loss by using the same formula.

Example: You buy 1 lot of USD/AUD at 1.2917 and sell at 1.2932 P/L = (1.2932 – 1.2917) x 100,000 x 1 = 150 AUD

CAREFUL: the profit figure stated here is in AUD, not USD. It is important to remember that with indirect quotes (where USD is not the quote currency) you need to convert the profit and loss figure to USD by dividing it by the relevant exchange rate. You have 150 AUD; divide by the sell price [because you’re selling AUD and buying USD] 150 AUD/1.2932 = 115.99 USD