Lot

In the financial markets, oftentimes the actual value of a security or an asset cannot be traded as a single unit. To tackle this, the term “lot” is used to represent a standardised number of units of an asset, with 1 lot typically representing the minimum number of units an investor can purchase.

In forex trading, lot size is a measure of how many units of the base currency in a forex pair that a trader has in an open position, where a standard lot is equal to 100,000 units of the base currency in a FX trade. There are also smaller lot sizes available for some brokers, such as mini lots, micro lots and nano lots.

Here are the commonly used lot sizes for trading. 

Now that you better understand the size of different lots, here are some examples of lot size calculations.

In this example, we are using 1 standard lot size (100,000 units) to demonstrate the impact on the pip value. For currency pairs that include the Japanese yen (such as USD/JPY), a pip equals .01 of the quoted price, reflecting the yen’s relatively lower value compared to other major currencies.

Example 1: Calculation for USD/JPY

The exchange rate for USD/JPY is 154.45.

1. Since the pip value in JPY pairs is calculated differently, we note that a single pip change affects the second decimal place (.01).
2. To calculate the pip value in USD, use the formula: Pip value = (0.01 / exchange rate) × lot size
3. Therefore, the pip value = (0.01 / 154.45) × 100,000 = approximately $6.47

Example 2: Calculation for EUR/USD

The exchange rate for EUR/USD is 1.064.

1. For non-JPY pairs, a pip moves in the fourth decimal place (.0001).
2. To calculate the pip value in USD, use the formula: Pip value = (0.0001 / exchange rate) × lot size
3. Therefore, the pip value = (0.0001 / 1.064) × 100,000 = approximately $9.40

Learn more about lot size, pips, and risk-to-reward ratios in our article to better understand lot sizing and pip calculations.

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