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Lot
In the financial markets, oftentimes the actual value of a security or an asset cannot be traded as a single unit. To tackle this, the term “lot” is used to represent a standardised number of units of an asset, with 1 lot typically representing the minimum number of units an investor can purchase.
In forex trading, lot size is a measure of how many units of the base currency in a forex pair that a trader has in an open position, where a standard lot is equal to 100,000 units of the base currency in a FX trade. There are also smaller lot sizes available for some brokers, such as mini lots, micro lots and nano lots.
Here are the commonly used lot sizes for trading.
| Lots | Units | |
| Standard Lot | 1 Lot | 100,000 |
| Mini Lot | 0.1 Lot | 10,000 |
| Micro Lot | 0.01 Lot | 1,000 |
| Nano Lot | 0.001 Lot | 100 |
Now that you better understand the size of different lots, here are some examples of lot size calculations.
In this example, we are using 1 standard lot size (100,000 units) to demonstrate the impact on the pip value. For currency pairs that include the Japanese yen (such as USD/JPY), a pip equals .01 of the quoted price, reflecting the yen’s relatively lower value compared to other major currencies.
Example 1: Calculation for USD/JPY
The exchange rate for USD/JPY is 154.45.
- Since the pip value in JPY pairs is calculated differently, we note that a single pip change affects the second decimal place (.01).
- To calculate the pip value in USD, use the formula: Pip value = (0.01 / exchange rate) × lot size
- Therefore, the pip value = (0.01 / 154.45) × 100,000 = approximately $6.47
Example 2: Calculation for EUR/USD
The exchange rate for EUR/USD is 1.064.
- For non-JPY pairs, a pip moves in the fourth decimal place (.0001).
- To calculate the pip value in USD, use the formula: Pip value = (0.0001 / exchange rate) × lot size
- Therefore, the pip value = (0.0001 / 1.064) × 100,000 = approximately $9.40
Learn more about lot size, pips, and risk-to-reward ratios in our article to better understand lot sizing and pip calculations.
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