A lot is defined as a unit of the transaction size used in trading and is one of the important elements of risk management. The size of the transaction or the lot value changes from one market or security to another.
Lot is also known as a contract size and is how securities are generally traded. The lot size that you choose should ideally be determined by your account leverage, risk management and equity.
In Forex, a standard lot or a lot is measured as 100,000 units. The table below gives a break-up of the different lot sizes.
|Lot Size||Value (Units)|
Depending on your account equity and leverage, the maximum lot size can vary as well as the pip value for 1 pip as shown in the table below.
|Lot Size||Value||Pip Value|
Which lot size is best? While the answer to the above can vary from one trader to another, it is always advisable to choose a Forex broker that offers micro lots. Some Forex brokers usually offer a mini lot as the minimum standard lot based on the account equity with a minimum deposit of $10,000 and above. In conclusion, understanding lot size is important to managing risk in Forex trading. Therefore, choose the lot size that you trade with carefully.