What is a Lot or trading volume in the forex market?

One of the most important basic and practical concepts in the forex market is the trading volume or lots.

Lot or trading volume is one of the primary and basic concepts in the forex market that you must learn before entering the wonderful trading world because risk calculation and capital management are impossible without knowing the concept of Lot. We will address this issue in this article from the Trendo educational team. Stay Tuned.

Contents

What is the trading volume and Lot?

The amount of buying or selling of a currency pair or asset in the forex market is the trading volume, whose measurement unit is the Lot. In other words, in the forex market, traders specify the volume of their exchanges based on lots. Each lot unit is equal to 100,000 units of the base currency. For example, buying 1 lot of the USDCHF currency pair means buying $100,000 against the franc currency.

About leverage and lots, we can say that the higher the leverage of an account, the more lots can be traded because, with higher leverage, less margin or credit is required for trading.

Types of lots in the forex market

In brokers, for a diverse range of traders with different capitals, usually 4 types of volumes or lot units are offered, which are:

Standard Lot: The standard lot size equals 100,000 units of the base currency. For example, if a trader makes a transaction with the volume of 1 standard lot in the EURUSD currency pair and the exchange rate is 1.17, excluding leverage, he must buy 117,000 euros. In such a transaction, the value of each pip of the price movement will be $10.

Mini Lot: The mini-lot size equals 10,000 units of the base currency. For example, if a trader makes a transaction with the volume of 1 mini-lot in the EURUSD currency pair and the exchange rate is 1.17, excluding leverage, he must buy 11,700 euros. In such a transaction, the value of each pip of the price movement will be $1.

Micro Lot: The micro lot size equals 1,000 units of the base currency. For example, if a trader makes a transaction with the volume of 1 micro lot in the EURUSD currency pair and the exchange rate is 1.17, excluding leverage, he must buy 1,170 euros. In such a transaction, the value of each pip of the price movement will be $0.1 or 10 cents.

Nano Lot: The nano lot size equals 100 units of the base currency. For example, if a trader makes a transaction with a volume of 1 nano lot in the EURUSD currency pair and the exchange rate is 1.17, excluding leverage, he must buy 117 euros. In such a transaction, the value of each pip of the price movement will be $0.01 or 1 cent. Of course, this type of trading volume is rarely used in forex trading activities, and it is impossible to conduct transactions with this volume in most brokers.

Read More: How to use Take Profit and Stop Loss in Forex trading.

The types of lots with full details are shown for comparison in the table below:

The lowest and highest amount of lots in brokers

Lot sizes for trading depend on your broker, but in most brokers, includingTrendo International Broker, standard lots, mini lots, and micro lots are provided for traders. In Trendo Broker, the maximum trading volume for each position is 50 lots, and the minimum trading volume is 0.01 lots. As a result, traders with any amount of balance can execute and manage their trades in the forex market.

Choosing the right volume for trading

One of the most important trading principles in financial markets is capital management. Since the capital management strategy can be different for each trader and the trading volume is directly related to capital management, in the first step, be careful in choosing the broker and the type of accounts it offers. To learn more about this issue, here's an example of trading in the real account of Trendo Broker. All accounts offered in Trendo Broker are ECN type. To learn more about this account, you can refer to the following link:

As a professional trader, you must calculate your potential profit or loss before entering a trade and be fully prepared for both situations. We recommend never risking more than 2% of your total capital in one trade. Suppose an account balance is $1000. So we can only risk $20 per trade. So, if the stop loss is activated in this transaction, we should lose $20 at most. Considering the value of $20, we go to the price chart. For example, according to the picture below, we intend to enter into a transaction to buy gold at the 2144 price and set the stop loss at 2139.

Since our stop loss in this transaction is 50 pips, we calculate our trading volume via the following formula:

In this example, with a risk amount of $20 and a stop loss of 50 pips, our trading volume will be 0.04 lots. You can also easily use Trendo's Forex calculator to calculate your profit in a trade. Also, in case you want to know the concept of pip and how to calculate the profit and loss of your transactions, we recommend referring to the following article:

Read More: What is Pip in Forex?

Summary

In this article, we discussed the concept of Lot and trading volume and showed the steps of calculating the volume of transactions by presenting an example of Trendo Broker's real account. As a professional trader, you must use the introduced formula daily and in every trade and constantly control your risk in every transaction. We recommend risking a maximum of 2% in one transaction and a maximum of 5% of your total capital on each trading day.