What is Lot in Forex Guide

<div dir="ltr" style="text-align: left;" trbidi="on"> <div class="separator" style="clear: both; text-align: center;"> <span style="margin-left: 1em; margin-right: 1em;"><img border="0" height="253" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHVldn_9Uhaeg66CKiwUygKb0c3Sw1B6qdgFAd7AWawKnsHczX5RoBDBhd1P6qpdlngDkRnOCfHE8iwIJzHt7eo1_cQgMPo6jMvPkDTkkHsNQ2v5Gw9j0IOAw2Ewj4hlG84Aknl37wS9c/s1600/forex_margin.gif" width="400" /></span></div> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> <br /></div> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> In the past, spot forex was only traded in specific amounts called lots. The standard size for a lot is 100,000 units. There are also a mini, micro, and nano lot sizes that are 10,000, 1,000, and 100 units respectively.</div> <table border="0" style="border-collapse: collapse; border-spacing: 0px; border: 0px; color: black; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin: 0px; padding: 0px; vertical-align: baseline; width: 225px;"><tbody style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;"> <tr style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;"><th align="center" bgcolor="#333333" scope="col" style="border: 0px; color: white; margin: 0px; padding: 0px; vertical-align: baseline;">Lot</th><th align="center" bgcolor="#333333" scope="col" style="border: 0px; color: white; margin: 0px; padding: 0px; vertical-align: baseline;">Number of Units</th></tr> <tr style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;"><td align="center" style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">Standard</td><td align="center" style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">100,000</td></tr> <tr style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;"><td align="center" style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">Mini</td><td align="center" style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">10,000</td></tr> <tr style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;"><td align="center" style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">Micro</td><td align="center" style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">1,000</td></tr> <tr style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;"><td align="center" style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">Nano</td><td align="center" style="border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">100</td></tr> </tbody></table> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> As you may already know, the change in currency value relative to another is measured in “pips,” which is a very, very small percentage of a unit of currency’s value. To take advantage of this minute change in value, you need to trade large amounts of a particular currency in order to see any significant profit or loss.</div> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> Let’s assume we will be using a 100,000 unit (standard) lot size. We will now recalculate some examples to see how it affects the pip value.</div> <ol style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; list-style-image: initial; list-style-position: initial; margin: 0px 0px 18px 1.5em; padding: 0px; vertical-align: baseline;"> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;"><span style="color: #009901;"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;">USD/JPY</span></span> at an exchange rate of 119.80(.01 / 119.80) x 100,000 = $8.34 per pip</li> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">USD/CHF at an exchange rate of 1.4555(.0001 / 1.4555) x 100,000 = $6.87 per pip</li> </ol> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> In cases where the U.S. dollar is not quoted first, the formula is slightly different.</div> <ol style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; list-style-image: initial; list-style-position: initial; margin: 0px 0px 18px 1.5em; padding: 0px; vertical-align: baseline;"> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">EUR/USD at an exchange rate of 1.1930(.0001 / 1.1930) X 100,000 = 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip</li> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">GBP/USD at an exchange rate or 1.8040(.0001 / 1.8040) x 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.</li> </ol> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> Your broker may have a different convention for calculating pip value relative to lot size but whichever way they do it, they’ll be able to tell you what the pip value is for the currency you are trading is at the particular time. As the market moves, so will the pip value depending on what currency you are currently trading.</div> <h2 style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; clear: both; font-family: Arial, 'Lucida Grande', Verdana, Helvetica, sans-serif; font-size: 1.2em; font-stretch: normal; margin: 0px 0px 0.8em; padding: 0px; vertical-align: baseline;"> What the heck is leverage?</h2> <div class="separator" style="clear: both; text-align: center;"> <span style="margin-left: 1em; margin-right: 1em;"><img border="0" height="195" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiA0qu6RPj5vPnWEqq1NUlT0DLqu883GJu-450PPuDNSPqaKcQr11-U7VcwYSaVM8JeaWt5uAs0z8G6Yl-FBXMWK8mTHBG3DXSsO3x95yq9CRrjb_b7xhXDxq-nGdtmBPooAlqusuBC1RY/s1600/1.1-3.png" width="640" /></span></div> <div> <br /></div> <div> <br /></div> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> You are probably wondering how a small investor like yourself can trade such large amounts of money. Think of your broker as a bank who basically fronts you $100,000 to buy currencies. All the bank asks from you is that you give it $1,000 as a good faith deposit, which he will hold for you but not necessarily keep. Sounds too good to be true? This is how forex trading using leverage works.</div> <div class="separator" style="clear: both; text-align: center;"> <span style="margin-left: 1em; margin-right: 1em;"><img border="0" height="166" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhe_Yxp6fn4FYcnRQcguYL3XSQGYu7FEU4xmmC0lbtkwk-Nl87psJTTj-0meIAk9Hkr6fOaO95L9fT2ujWYpkTmurb1UwNAMavvAzyTJ6fM_K2thbqMasvewbkNMGQboN3um-_Fxqph81s/s1600/forex-leverage-trading.jpg" width="400" /></span></div> <br /> <span style="background-color: white; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px;">The amount of leverage you use will depend on your broker and what you feel comfortable with.</span><br /> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> Typically the broker will require a trade deposit, also known as “<span style="color: #009901;"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial;">account margin</span></span>” or “initial margin.” Once you have deposited your money you will then be able to trade. The broker will also specify how much they require per position (lot) traded.</div> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> For example, if the allowed leverage is 100:1 (or 1% of position required), and you wanted to trade a position worth $100,000, but you only have $5,000 in your account. No problem as your broker would set aside $1,000 as down payment, or the “margin,” and let you “borrow” the rest. Of course, any losses or gains will be deducted or added to the remaining cash balance in your account.</div> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> The minimum security (margin) for each lot will vary from broker to broker. In the example above, the broker required a one percent margin. This means that for every $100,000 traded, the broker wants $1,000 as a deposit on the position.</div> <h2 style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; clear: both; font-family: Arial, 'Lucida Grande', Verdana, Helvetica, sans-serif; font-size: 1.2em; font-stretch: normal; margin: 0px 0px 0.8em; padding: 0px; vertical-align: baseline;"> How the heck do I calculate profit and loss?</h2> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> So now that you know how to calculate pip value and leverage, let’s look at how you calculate your profit or loss.</div> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> Let’s buy U.S. dollars and Sell Swiss francs.</div> <ol style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; list-style-image: initial; list-style-position: initial; margin: 0px 0px 18px 1.5em; padding: 0px; vertical-align: baseline;"> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">The rate you are quoted is 1.4525 / 1.4530. Because you are buying U.S. dollars you will be working on the “ask” price of 1.4530, or the rate at which traders are prepared to sell.</li> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">So you buy 1 standard lot (100,000 units) at 1.4530.</li> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">A few hours later, the price moves to 1.4550 and you decide to close your trade.</li> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">The new quote for USD/CHF is 1.4550 / 1.4555. Since you’re closing your trade and you initially bought to enter the trade, you now sell in order to close the trade so you must take the “bid” price of 1.4550. The price traders are prepared to buy at.</li> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">The difference between 1.4530 and 1.4550 is .0020 or 20 pips.</li> <li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">Using our formula from before, we now have (.0001/1.4550) x 100,000 = $6.87 per pip x 20 pips = $137.40</li> </ol> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> Remember, when you enter or exit a trade, you are subject to the spread in the bid/offer quote. When <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">you buy a currency, you will use the offer or ask price</strong> and when <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; margin: 0px; padding: 0px; vertical-align: baseline;">you sell, you will use the bid price</strong>.</div> <div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-family: 'Lucida Grande', Verdana, Arial, Helvetica, sans-serif; font-size: 12px; line-height: 18px; margin-bottom: 18px; padding: 0px; vertical-align: baseline;"> Next up, we’ll give you a roundup of the freshest forex lingos you’ve learned!</div> </div>

What is Lot in Forex Guide

In the past, spot forex was only traded in specific amounts called lots. The standard size for a lot is 100,000 units. There are also ...

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