A lot refers to a bundle of units in trade. It essentially refers to the size of the trade that you are making.

Some examples of lots that you may be familiar with is at the grocery store. If you buy a 6-Pack of your favorite beverage you are essentially buying 1 lot. The 6-Pack is an example of a LOT.

In Foreign Exchange, lots comprise how many units of currency in the trade. The smallest lot available is a micro lot which is a bundle of 1, units of currency often times referred to as 1k.

This means the smallest trade size you can make is in multiples of 1k. You can trade 1k, 2k, 3k, or k just so long as it is in multiples of 1k. Each 1k is referred to as a lot. In the example above, the trader would be placing an order for 15 lots since the trade size is 15k or 15, units of currency. You may also hear terms like mini lots or standard lots. These are older FX terms that refer to larger trade sizes.

Years ago, FX trading was conducted with a minimum trade size of k which was considered a standard lot. Then, as the big banks became better at processing the plethora of electronic trades from retail brokers , they were able to offer a mini lot which was 10k units of currency. Eventually, the minimum trade size was lowered to 1k which is called a lot or micro lot.

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A yard of currency is 1 billion units. Naturally, the more lots you trade, the greater risk you are taking on.

Choosing a Lot Size - Foreign Exchange/Forex Trading

Newer traders need to realize the impact their trade size has on their account equity. In many cases, the best way to reduce risk is to reduce the number of lots traded. Open a free forex practice trading account and place two different trades with a different number of lots. Try placing a trade on the EURUSD for 10 lots.

Definition of "Lot" in Forex Trading

Then, place another practice trade on the GBPUSD for lots. Notice how GBPUSD moves quicker and is a risker trade because of more units exposed in the market.

Once you get comfortable with how the lot works, understanding forex trade sizes using notional value can bring more clarity as to why certain pairs may move more than others and why pip costs may differ drastically.

Contact us at instructor dailyfx. Follow me on Twitter at JWagnerFXTrader. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Learn forex trading with a free practice account and trading charts from FXCM. Keep your hands in your pockets and don't take what isn't yours.

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What is a Lot in Forex? DailyFX January 1, Recently Viewed Your list is empty. What to Read Next.

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