What is forex trading lot size and how to calculate it?

On the foreign exchange market, the trading occurs in lots. This is the standard volume of one transaction, considered as a unit of a trading operation. Let’s discuss a forex trading lot size in detail in order to understand basic calculations.

The starting point and the definition

According to the broker guide, one lot is equal to 100,000 units of the main currency that is traded. If we take as an example the GBP/USD pair, we are talking about pounds sterling as the main one, so exactly 100,000 GBP will have to be spent in the deal.

For effective and correct planning of transactions, a trader must be able to calculate the optimal size of a lot. It is needed in order not to drain your entire deposit in one transaction or, on the contrary, not to trade an amount that is too small, which does not allow you to ensure a normal income.

Classification of trading lots on the foreign exchange market

Due to the fact that not every private trader can afford to immediately trade using 100 thousand dollars in the Forex market (which is dangerous at the beginning at least and inaccessible even to many professionals at the most), brokers give the opportunity to choose much smaller volumes.

The broker combines many one-way deals from different traders into one and then puts them on the market, and allows clients to utilize much smaller amounts in their work. Leverage is provided when trading is conducted with borrowed funds with collateral in the form of funds on the trader’s account.

It is recommended to familiarize yourself with the types of lots before calculations:

  • Standard is a whole lot, the volume of which is 100,000 units. If you take the size, then it is 1.
  • Mini has a tenfold reduction of the standard, 10,000 units, and has the designation 0.1.
  • Micro specifies 1000 units with a size of 0.01.
  • Cent is 100 times less than standard.

Mini- and micro-lots belong to the class of small. Brokers collect them and comprehensively bring the investments of small players together, simply combining them into a standard volume. This option is relevant for many traders who cannot or do not want to utilize hundreds of thousands of dollars in trading but have a desire to work and earn.

Features of carrying out calculations

To do everything correctly and work on Forex safely, it is necessary to:

  • correctly calculate the lot size;
  • think about your deposit;
  • take into account the price of one item in the standard trade volume.

Beginner traders are advised to always start with 0.01 with brokers with four-digit quotes and with 0.001 with five-digit quotes.

The size of the lots can be regulated and mandatory in some financial markets. Still, there are no special restrictions on the market and you can trade even with a small amount. A special calculator can quickly and correctly calculate the items. It is enough to enter the data correctly and the optimal volume of the transaction will be calculated automatically.

What is forex trading lot size and how to calculate it?

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