What is ‘lot size’ in forex?

Determining lot size on MT4

            We have so far discussed buying and selling in the market, and the main parameters a trader has to determine before entering, however we have not yet established the connection of these technicalities to a trader’s funds. With every transaction we make in the market, there is a risk associated with it, and we must determine the exact proportion of capital we are risking on a particular trade. The action of doing so is called risk management, and it will be discussed in the next lesson. Understanding and applying our knowledge of lot sizes is vital to our risk management. When trading forex, the lot size must be specified on your trading platform before entering a trade. The image for AUDUSD market execution depicts the process of choosing your lot size before entering the market using MetaTrader4, the most popular mobile forex trading software.

            Forex is traded in specific amounts called lots, which refer to the number of units of currency we are buying or selling. When we place an order on the market from our trading platform, we place this order in a size measured in lots. The lot size dictates the amount of profit or loss we are making on the market for every pip in price movement. The table below describes the connection between lot sizes and number of units when executing an order. 

Lot Number of units
Standart (1.00)100 000
Mini (0.10) 10 000
Micro (0.01)1 000

If we wish to sell 10 000 units of AUDUSD, the lot size we use is 0.10. Lot sizes can be multiplied by 10, to determine the sum of money we gain or lose for every pip that price moves after we have entered the market. The value of pips is always measured in terms of the quote currency. Relating to the AUDUSD example, if we sell 0.10 lots of this currency pair, we will gain 1 (0.10 x 10 = 1) US Dollar (USD is the quote currency in EURUSD) for each pip in downside movements, and lose $1 for each pip that EURUSD appreciates above our entry price. The table below describes a few examples; 

Lot sizeCurrency pairValue per pip
0.25GBPAUD 2.5 Australian Dollars 
1.23EURNZD12.3 New Zealand Dollars
0.01EURGBP0.10 British Pounds
10.0CADCHF100 Swiss Francs

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