A “lot” is a unit measuring a transaction amount.
Orders are placed in sizes quoted in lots.
It’s like an egg carton. When you buy eggs, you usually buy them in a carton. One carton includes a dozen (12) eggs.
The standard lot size is 100,000 units of currency.
So a lot of 1 equals 100,000 units of currency.
And a lot of 2 equals 200,000 units of currency.
In addition to standard lots, there are also mini, micro, and nano lot sizes that are 10,000, 1,000, and 100 units respectively.
|LOT||NUMBER OF UNITS|
Some brokers show quantity in “lots”, while other brokers show the actual currency units.
As you may already know, the change in a currency value relative to another is measured in “pips,” which is a very, very small percentage of a unit of currency’s value, or a fraction of a fraction of a penny.
To take advantage of this small change in value, you need to trade large amounts of a particular currency in order to see any significant profit or loss.
Let’s assume we will be using a 100,000 unit (standard) lot size. We will now recalculate some examples to see how it affects the pip value.
- USD/JPY at an exchange rate of 119.80: (.01 / 119.80) x 100,000 = $8.34 per pip
- USD/CHF at an exchange rate of 1.4555: (.0001 / 1.4555) x 100,000 = $6.87 per pip
In cases where the U.S. dollar is not quoted first, the formula is slightly different.
- EUR/USD at an exchange rate of 1.1930: (.0001 / 1.1930) X 100,000 = 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip
- GBP/USD at an exchange rate of 1.8040: (.0001 / 1.8040) x 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.