A lot references the smallest available trade size that you can place when trading currency pairs in the foreign exchange market.
Lot represents the size of your trades in Forex. In another interpretation, Lot is the number of currency units you will trade in Forex.
There are four main types of Lots: Standard Lot, Mini Lot, Micro Lot, and Nano Lot.
- Standard Lot: 1 standard lot is equivalent to the volume of 100,000 units. Whenever you purchase one Lot of a currency pair, you buy 100,000 units of the base currency (the first currency in a pair). For instance, buying one Lot of EUR/USD means you buy 100,000 EUR. Another example is that you want to buy a currency pair EUR/USD at the exchange rate of 1.5 (1 EUR = 1.5 USD). Then, when you buy one Lot of this currency pair (equal to 100,000 EUR), you purchase $150,000 (100,000*1.5). If you use a leverage of 1:100, you only pay $1,500 (150,000/100= $1,500) to open your position.
- Mini Lot: Beginner traders are often advised to trade with mini, micro, or nano lots to avoid the risk of enormous losses. A mini lot is equal to 10,000 units, which is 10% of a standard lot. Hence, when a trader opens an order of 0.1 lots, he is trading one mini Lot.
- Micro Lot: A micro lot equals 1000 units, which account for 1% of a standard lot. When a trader opens an order of 0.01 lots, he is trading one micro Lot. For instance, buying 0.01 lots of GBP/USD means you accept 1,000 GBP.
- Nano Lot: A nano lot, in Forex, is referred to as like 10 or 100 units. Why is there a difference in units? Because some forex brokers set nano lot to 10 teams while some others put it to 100 units. However, nano lot is not familiar; only a few brokers offer it. Usually, the nano lot is the preferred choice of newcomers or strategy testers. Therefore, if you purchase a new expert advisor or test a new strategy, nano lot is suitable for you, at least for the first weeks.
Lot Sizes for Commodities
One Lot of Gold is equivalent to a hundred ounces, and one Lot of Silver is equal to 5000 ounces. One Lot of Crude Oil is referred to as 100 barrels. Meanwhile, one Lot of Natural Gas is quantified by 100,000 cubic meters. Those statistics are not written in stone but can change depending on the broker. Therefore, you should obtain information about commodities from the broker you trade with to get the best understanding.
In short, it is essential to know your trade volume because it affects your trading strategies and your profits. A more considerable lot may bring you more significant risks, which means that you can see big gains or consequential losses, and smaller Lot such as nano lot or mini Lot are often suitable for beginner traders who are more comfortable trading with smaller sizes and lower risk.