In the usual sense, a lot is a standard unit for measuring the volume of a currency position opened by a trader. That is the amount of money invested in the purchase of a currency in order to sell at a higher price later. Lot calculation is an element of the account risk management system. It is essential to know what is lot trade size to build a balanced trading system.
Let us find out what one lot in Forex market is.
The standard lot in Forex pairs is 100,000 currency units of account base currency. For example, if the EURUSD rate is 1.1845, you will need 118,450 quoted currency units to open the position of 1 lot. It means you will need 118,450 US dollars to buy 100,000 euros, which is the base currency.
The account base currency is the currency that is bought or sold for quote currency. It always comes first in the quote. The currency pair price is always expressed in the quote currency. For instance:
- 0.01 lot of the GBPUSD with a quote of 1.29412 means that you will pay 1 294.12 USD to buy 1 000 GBP.
- 0.01 lot of the EURAUD with the quote of 1.65981 means that you will pay 1 659.81 AUD to buy 1000 EUR.
The value of 1 standard lot of 100,000 units of the account base currency is relevant for currencies. Other assets have a different position size meaning. For example, for stocks, this is the number of stocks. The number of stocks in a lot depends on what stock is meant. Oil is measured in barrels, gold – in troy ounces. You can see the lot value, the number of conventional currency units in one contract, in the specification.
