Lots - definition, calculation, types

 A lot is a standard unit in the Forex market that is traded by traders. This concept was introduced in order to make it easier to learn trading and analyze trading. Of course, for ordinary traders in the Forex market, this concept is not so important, since the amounts are too small. The volume of transactions in this case is measured in tenths or even hundredths of the lot units.
This concept is intended more for large players.
What is a lot?

As we have already understood, a lot is a unit in which the volume of transactions is measured, indicating 100 thousand units of the base currency (that is, the one that costs the first). For example, if you take the EURUSD pair, then this will be considered the Euro. As you can see, an ordinary trader will not be able to trade whole lots, because it is unlikely that he will have the amount necessary to buy at least one unit of currency.

Lots-definition, calculation, types

Lots are traded by brokers, commercial and Central banks. In fact, they determine most of the quotes. The task of intermediaries is to accumulate traders ' funds in order to be able to trade whole lots. Each of the broker's clients receives their well-deserved share of the profit.

Although the standard lot is 100 thousand units of the base currency, there are also additional types of it (they are called fractional). So, a mini lot is 10 thousand units of the first currency, and a micro lot is only a thousand. But in fact, it turns out that an ordinary trader will not even be able to trade micro lots. That is why the broker issues a certain amount of credit on a special leverage.
How is the lot size calculated?

In principle, everything is already clear. But it is better to show the mechanism on a real example. To begin with, let's take one microlot. In this case, the item will cost 10 cents. For example, buy the Euro / dollar currency pair. Let's assume the cost is 1.3026. If we sell it at the price of 1.3036, then the trader will receive an income of 10 points. With this volume of one lot, we will get a dollar of net profit.

If we take a mini lot, in this case one item will cost one dollar, and if we take 10 items, the cost will be as much as ten dollars. When buying a standard lot, respectively, $ 100 for the same 10 points.
Changing the currency price in the example

Everything is simple here. If we buy one standard lot, then each movement of the currency by one point will give us $ 10 profit or loss. As for the mini lot, this price will be 1 dollar, and the micro-only 10 cents. The mechanics are clear. If you trade in mini Forex, everything is measured in cents. Thus, the profit on the microlot will be 0.1 cents.

Please note that when choosing the lot size, focus on the strategy you want to use to earn money. Often, beginners are not careful enough to trade, and use too large lots in trading (for this they use leverage). Money management rules say that you need to risk no more than 10% of the Deposit. Thus, it is quite dangerous to start trading on the Forex market without even $ 100 (you can't " win back”).