What is lot size in FOREX trading

Spot forex used to be only traded in lots, instead of any kind of customized amount.  Typically, lots were 100,000 units of currency, and of course, this was divided into smaller units, as well.  The mini, micro, and nano lot sizes were 10,000, 1,000, and 100 units respectively.

 

“Lots” allow investors to truly take advantage of minor changes in currency value.  This way, if there is a change in pip value, the investor can still make a certain amount of money even if the currency value changes only slightly.  Here, we will show exactly how that works.

 

    If we use a standard lot size, that would be 100,000 units.  Let’s show how we could possibly take advantage of a change in pip value.

 

  •     USD/JPY at an exchange rate of 129.70 (.01/129.70) x 100,000 = $7,71 per pip

  •     USD/CHF at an exchange rate of 1.36 (.0001/1.36) x 100,000 = $7,35 per pip.

 

This should give you an idea of the pip value, and one thing is important: your broker might have a different way for calculating pip value, so this could affect the way that you trade, as well.  Of course, the market is constantly changing, so this means that the pip value is also constantly changing, as well.

 

The fact that margin trading exists, and brokers essentially act as banks, where they ask for a good faith deposit but allow you to trade massive amounts of currency, is why many people can take advantage of lots and pip values, and end up making a living with the forex market!


 

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