A standard lot is the equivalent of 100,000 units of the base currency in a forex trade. It's one of several standardized trade sizes for buying or selling currencies.
Currencies are traded in lots rather than singular units. There are four common sizes: standard, mini, micro, and nano. A standard lot is also referred to as 1 lot and it's the largest available.
- Currencies are traded in lots rather than singular units and there are four sizes to choose from: standard, mini, micro, and nano.
- A standard lot is the largest, representing 100,000 units of the?base?currency.
- An investor is ordering 100,000 units of the currency being bought or sold when they place a forex order with a standard lot.
- The larger the lot size, the more money you must put down and the bigger the potential return or loss.
- One pip is usually equal to $10 in a standard lot.
What Are Standard Lots in Forex?
An investor is ordering 100,000 units of the currency being bought or sold when they place a forex order with a standard lot. As with sliced bread, M&M’s, toilet paper, and countless other products, currency isn't tradeable in singular units. It’s necessary to buy or sell a batch of them to make money from small movements. These batches are known as lots.
Lots come in standard sizes, much like various consumer products. Currencies are commonly traded in units of 100 (nano), 1,000 (micro), 10,000 (mini), or 100,000 (standard) in forex markets.
Standard lots are named this way because 100,000 units are considered to be the norm for trading currencies, at least among experienced and professional forex traders.
Standard Lots and Currency Pairs: An Example
Currency trading is done in?pairs. You don’t simply say: “I think the U.S. dollar will rise.” You have to specify against which currency it will do so.
You’d buy the EUR/USD currency pair if you believe the euro will strengthen in value against the U.S. dollar. One euro was worth about $1.073 in mid-September 2023. You’d need 107,300 units of USD, the quote currency, at this price to buy 100,000 units of EUR, the base currency or the currency you want to invest in.
A one-pip movement for a standard lot generally corresponds with a $10 change. A one-pip movement is the smallest whole unit price move that an exchange rate can make. You would make a profit of 10 pips or $100 if the exchange rate of the EUR/USD pair moved from 1.0701 to 1.0711.
What Are the Types of Lots?
The standard lot isn't the only investment size in forex. There are three alternative options to choose from as well.
|The Four Lot Sizes|
|?Standard||100,000 units of the base currency|
|?Mini||10,000 units of the base currency|
|?Micro||1,000 units of the base currency|
|?Nano||100 units of the base currency|
The biggest size lot is the standard one and the smallest is the nano. There are significant differences in the number of units in each of these lots. You're putting much less money on the line with nano lots than with the standard lot, limiting risk but also your potential returns.
Standard lots are generally used by professional traders. Mini lots are used by intermediate traders with less trading capital. Micro and nano lots are used by beginners who want to experiment in forex markets without risking much capital.
The larger the lot, the higher the profit or loss could be.
Why Are Lots Important?
Understanding lots in forex is important because it determines exposure. The larger the lot size, the more money you must put down and the bigger the potential return or loss. In most cases, a one-pip movement is worth the following monetary amounts, barring a few currency pair exceptions:
- A standard lot = $10
- A mini lot = $1
- A micro lot = $0.10
- A nano lot = $0.01
Each pip movement holds greater weight with a standard lot.
The value of a one-pip movement may be different in some currency pairs.
Advantages of Standard Lots
Standard lots are great for high-conviction trades. Buying more units can be appealing if you're particularly confident about the direction of one currency against another and want to maximize your returns.
Competitive pricing is another benefit of investing in a bigger lot size. You'll generally get a lower spread or commission when you're making larger trades.
Leverage is capped at 50:1 on most currency pairs and at 20:1 on others.
Disadvantages of Standard Lots
Trading standard lots isn’t for everyone. It’s not likely to be an affordable option for most regular investors. The upfront cost can be huge and that’s without calculating margin requirements.
Investments of this size are also riskier. Buying 100,000 units rather than 100 units in a base currency means having a lot more at stake.
What Is an Example of a Standard Lot?
A standard lot in forex is equal to 100,000 currency units.?One standard lot of the base currency would be 107,300 units or $107,300 if you buy EUR/USD when the exchange rate is $1.073, the value of one euro.
What Are Five Standard Lots?
One standard lot represents 100,000 units, so five represent 500,000 units. A trade of this size would generally be executed by institutional investors or by individual traders with very deep pockets.
What Is a 0.1 Lot in Forex?
A 0.1 lot is a mini lot. It's one-tenth of a standard lot.
The Bottom Line
A lot is a standardized unit of measurement used to describe the volume or size of a particular trade in the forex market. Investors have four lots to choose from?and the standard lot is the largest, representing 100,000 units of the base currency in a currency pair.
Standard lots are what the big and experienced players use. It’s possible to make (and lose) significant amounts of money with this number of units because you're betting that one currency will either rise or fall in value against another one.
Capital.com. “What Are Lots in Forex: Understanding Lot Sizes in Forex.”
Harvard Law School. "Should Retail Investors’ Leverage Be Limited?"