What is Lot?

What is trading volume?

The buy or sell amount of a currency or an asset in financial markets such as Forex is called trading volume, in which its measurement unit is Lot. In Forex, traders set their trading volume based on lot.

What is Lot?

In the forex market, trading (buy and sell) is done with the measuring unit for the trading volume known as lot. Each lot in forex is equal to 100,000 units of the base currency. For example, 1 lot (USDCHF) buy means buying 100,000 units of the dollar.

Trading volume types and pip and lot relationship

As mentioned, in forex buy and sell are done with lot units. Therefore, traders should be fully aware of the lots' sizes offered by forex brokers. Because to be successful in trading and investing, knowing "how much budget is needed?" "How much is each pip's value in each lot size?" and "what is the amount of profit and loss?" In general, risk and capital management are essential in trading.

In the forex market, brokers usually offer 4 types of volume or lot size.

• Standard lot

The standard lot size is the maximum possible contract size offered by forex brokers. 1 lot of forex trading is 100,000 units of the base currency. Hence, the standard lot's value is $10 per pip when a trader trades 1 forex standard lot size.
Suppose a trader wants to buy the Euro for the US Dollar, and the exchange rate is EURUSD 1.17. Here, if the trader wants to buy 1 standard lot of EUR/USD, he should buy 117000 euros.

• Mini lot

One-tenth of a standard lot (0.1) is called a mini lot, which equals 10,000 units of the base currency. In this case, 1 pip's value in mini lot trades equals 1 dollar.
In Forex, 1 mini lot refers to a volume of 10,000 units. Therefore, a trader buying 1 mini lot of a forex currency pair means he purchased 10,000 units of the base currency. Suppose a trader wants to buy EUR/USD and the exchange rate is 1.17. Here, buying 1 mini lot of EUR/USD means he purchased 11700 EUR.

• Micro lot

One-hundredth of a standard lot (0.01) is called a micro lot, which equals  1,000 units of the base currency. Therefore, one pip's value in micro lot trading equals one-tenth of a dollar or 10 cents.
Micro lots are one of the smallest lot sizes traded in the forex market broker. They provide a safe platform for beginner traders to make suitable and profitable trades with low initial investment and minimize risk.
In Forex, 1 micro lot refers to a volume of 1000 units. So a trader buying 1 micro lot of a forex currency pair means he purchased 1000 units of the base currency. Suppose a trader wants to buy EUR/USD and the exchange rate is 1.17. In this case, buying 1 micro lot of EUR/USD means he purchased 1170 EUR.

• Nano lot

A nano lot is one-thousandth of a standard lot (0.001), which equals 100 units of the base currency.  A pip's value in nano lot trades equals one-hundredth of a dollar or 1 cent.
Although this lot exists and they use the term, It is rarely applied in forex trading activities, and most brokers do not have a trading volume of this size.

Minimum and maximum lot ratios

In forex, the highest and lowest lot ratios are directly related to the broker. Brokers often offer standard lots and their ratios up to 0.01, and some set arbitrary ratios for traders. So, the broker determines the maximum of these ratios, which is usually 30 or 50 lots. The lowest ratio is 0.01 lot, and some brokers offer up to one-thousandth of a lot (nano). As a result, a wide range of multipliers and lot ratios are available for traders according to the account type and broker.

Capital management

Capital management is one of the most important pillars and bases of trading in the financial market. Every trader can have different capital management based on their trading strategy. On the other hand, trading volume in forex is an important factor in capital management. Therefore, you should pay attention to the volume or size of the selected transaction. Note that the higher the trading volume and the lot size of trades, the higher the risk, and the probability of large profits or losses increases. So, when opening a new transaction, you should pay attention to the trading volume. Symbols are not tradable with the same volume or lot because the fluctuation of different symbols differs (such as the gold symbol, which is higher than the euro dollar symbol during the day based on pip) in general, compliance with capital management has several essential elements, one of its most important elements is trading volume and lot.