What is the meaning of "Lot size" in Forex Trading?

Currencies in Forex Trading are traded in lots. A standard lot size is 100 000 units.


Units refer to the base currency which are traded. E.g. with USD/CHF the base currency is US dollar so when you want to trade 1 standard lot of USD/CHF it would be worth $100 000.


Let us have a look at another example: GBP/USD - here the base currency is British Pound (GBP) and a standard lot for GBP/USD pair would be worth £100 000.


There are three types of lots (by size):


Standard lots = 100 000 units

Mini lots = 10 000 units

Micro lots = 1000 units.


Mini and micro lots are offered to traders who open mini accounts (on average from $200 to $1000). Standard lot sizes can be traded with larger accounts only. The requirements for a size of standard account can vary from broker to broker.


The smaller the lots size which are traded the lower will be the profits but the lower will be losses, too. If a trader talks about losses he also uses the term "risks". Because trading in Forex is as much about losing money as about making money.


Risks in Forex Trading refer to the possibility of losing entire investment while trading.


Returning back to lots:


With every Standard lot that is traded - 100 000 units - a trader risks to lose - or looks to win - $10 per pip. Where Pip is the smallest price increment in the last digit in the rate: e.g. the smallest price change/move.


With every Mini lot that is traded - 10 000 units - a trader risks to lose - or looks to win - $1 per pip.


With each micro lot that is trader - 1000 units - a trader risks to lose - or looks to win - $0.10 per pip.


A Forex trader always looks for the most efficient ways to limit risks. For this purpose different risk management and money management strategies are developed.


It is impossible to avoid risks in Forex trading. In order to limit risks you can use different methods of setting protective stops, trailing stops, use hedging techniques, study scalping strategies, look for the best deals on spreads among brokers etc.