What is a lot in forex and how do you calculate the lot size?

What is a lot in forex trading?

A lot in forex trading is a unit of measurement that standardises trade size. The change in the value of one currency compared to another is measured in pips, which are very tiny measures, so trading a single unit isn't viable — lots exist to enable people to trade these small movements in large batches.

The value of a lot is set by an exchange or similar market regulator, which ensures everyone trades a set amount and knows how much of an asset they're trading when they open a position. Lots are subdivided into four sizes — standard, mini, micro and nano — to give traders more control over their exposure.

To use an analogy, imagine a company sold boxes of chocolates in two sizes: 12 and 24. These are standard sizes consumers have come to expect, and they don't often expect to buy just one chocolate out of the box. It's the same with forex currency pairs. You can't just buy one unit of currency; instead, you buy a lot in a universally recognised standard size.

Forex lot sizes explained

The following examples all relate to the currency pair EUR/USD, which compares the euro (the base currency) against the dollar (the quote currency). If you buy EUR/USD, you're speculating that the euro is going to strengthen against the dollar. If the quote price is currently $1.1350, that means you can exchange €1 for $1.1350.

A standard lot is equal to 100,000 currency units. If the EUR/USD exchange rate was $1.1350, one standard lot of the base currency (EUR) would require 113,500 units of the quote currency (USD) to buy 100,000 units of EUR.

A mini lot is one-tenth the size of a standard lot, worth 10,000 currency units. At $1.1350, one mini lot would require 11,350 units of USD to buy 10,000 units of EUR. The size means the profit and loss effect is lower than a standard lot.

A micro lot is one-tenth the size of a mini lot, worth 1,000 units. At $1.1350, one micro lot would require 1,135 units of USD to buy 1,000 units of EUR. Micro lots require less leverage, so a swing won't have as much financial impact as with larger lot sizes.

A nano lot is one-tenth the size of a micro lot, worth 100 units. At $1.1350, one nano lot would require 113.50 units of USD to buy 100 units of EUR.

You can find out more in our guide to how to trade forex.

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Standard and micro lots on CFDs with us.

How do you calculate the lot size when trading forex?

You won't normally need to calculate the lot size yourself, as your trading platform should tell you what you need to know. It should be clear when placing a trade what options are available — standard, mini, micro and nano — and which lot size you're using. You can calculate the overall size of your position from the size of a lot and the number of lots you've bought.

With us, you can trade standard or micro lots using CFDs, toggling between the two before you execute the order. For spread bets, lot size isn't as important because you're speculating on the amount of value per point movement — to increase the size of your spread betting position, you'd increase your bet size.

How to choose lot size in forex

To choose your lot size, think about the risk you want to take. The greater the lot size, the more money you'll need to put down or leverage you'll need to use, and the more each pip movement will be magnified.

A one-pip movement is worth the following monetary amounts for each lot size, assuming you're trading EUR/USD: a standard lot is $10, a mini lot is $1, a micro lot is $0.10, and a nano lot is $0.01. As you can see, the smaller the lot, the less a one-pip movement costs, which means a smaller outlay by trading smaller lots. For more on managing the risk of leveraged positions, see our guide on leverage in forex trading.

How can I start trading forex?

You can trade forex online with us. Before you start, you might want to read our guide to forex and how to trade currency pairs. Once you're comfortable with the basics, you can get started with live trading straight away or create a free demo account to hone your skills.

To create an account and trade forex, create or log in to your trading account, find the pair you want to take a position on, decide whether to go long (buy) or short (sell), confirm your deal size, then open and monitor your position.

When you trade with us, you'll use spread bets and CFDs to go long or short on a currency pair's price. One main advantage is leverage, which enables you to open a position by paying a small percentage of the full value upfront — a spread bet on EUR/USD might require a deposit of just 3.33%. Bear in mind your exposure is based on the full value of the trade. Spread betting doesn't incur capital gains or stamp duty charges because you never own the underlying asset, though tax treatment depends on your circumstances and can change.

Forex lots summed up

• Forex lots are units of measurement that determine how many units of a currency you're buying
• You can buy four types of lots in forex: standard, mini, micro and nano
• Your position size is determined by the lot size and the number of lots you buy or sell

Ready to start trading forex? Open a live account to trade over 80 currency pairs, or practise on a demo account with £10,000 in virtual funds first. For more, see our guides on how to trade forex and leverage in forex trading.