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11. What is a Lot?

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Aayush Jindal

what is a lot?

Currency pairs in the forex market are traded in lots. A lot is the number of currency units you wish to buy or sell. Lots are divided into three categories: standard, mini and micro.

Standard lot

A standard lot is equivalent to 100,000 currency units. For example, if you buy 1 standard lot of EUR/USD you're essentially buying 100,000 Euros.

Pip value calculation for 1 standard lot

Lots traded determine the trade volume of a position. For all currency pairs in which the US Dollar is quote currency, 1 pip variation equals $10.

For example, for 1 standard lot (100,000) of EUR/USD, 1 pip will equal $10 as calculated below. If you bought EUR/USD at 1.1180 and booked profit at 1.1190, you ultimately gain $100 ($10 x 10 pips).

1.1180 x 100,000 = $ 111,800
1.1181 x 100,000 = $ 111,810

To calculate the pip value for currency pairs which do not have the US Dollar as quote currency, you can use the following formula:

pip value (non JPY pairs) = 100,000 x 0.0001 / exchange rate of the currency pair

For example, USD/CHF with the exchange rate at 0.9780

1 pip value = 100,000 x (0.0001/0.9780) = $10.225

pip value (JPY pairs) = 100,000 x 0.01 / exchange rate of the currency pair

For example, USD/JPY with the exchange rate at 110.20

1 pip value = 100,000 x (0.01/110.20) = $9.074

Mini lot

A mini lot is the equivalent to 10,000 currency units. For example, If you buy 1 mini lot of GBP/USD, you're essentially buying 10,000 Pounds.

Pip value calculation for 1 mini lot:

For all currency pairs in which the US Dollar is quote currency 1 pip variation equals $1. For example, 1 mini lot (10,000) of GBP/USD, 1 pip will equal $1.

To calculate the pip value for currency pairs which do not have the US Dollar as quote currency, you can use the following formula:

pip value (non JPY pairs) = 10,000 x 0.0001 / exchange rate of the currency pair

For example, USD/CHF with the exchange rate at 0.9780

1 pip value = 10,000 x (0.0001/0.9780) = $1.022

pip value (JPY pairs) = 1,000 x 0.01 / exchange rate of the currency pair

For example, USD/JPY with the exchange rate at 110.20

1 pip value = 10,000 x (0.01/110.20) = $0.9074

Micro lot

A micro lot is equivalent to 1,000 currency units. For example, if you buy 1 micro lot of AUD/USD, you're essentially buying 1,000 Australian Dollars.

Pip value calculation for 1 micro lot:

For all currency pairs in which the US Dollar is quote currency 1 pip variation equals $0.1. For example, 1 micro lot (1,000) of AUD/USD, 1 pip will equal $0.1.

To calculate the pip value for the currency pairs which do not have the US Dollar as quote currency, you can use the following formula:

pip value (non JPY pairs) = 1,000 x 0.0001 / exchange rate of the currency pair

For example, USD/CHF with the exchange rate at 0.9780

1 pip value = 1,000 x (0.0001/0.9780) = $0.1022

pip value (non JPY pairs) = 1,000 x 0.1 / exchange rate of the currency pair

For example, USD/JPY with the exchange rate at 110.20

1 pip value = 1,000 x (0.1/110.20) = $0.09074

How much you decide to risk and trade in the Forex market depends on the lot size and the pip value. Choosing the right trade size is very important as it decides how much you can gain or lose. It is important to keep a check risk management as you can collect a lot of green pips.

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