What Is Forex Lots

One of many questions to ask before trading on Forex is what is Forex lots? A "lot" in the Forex trading market is a group of 100,000 units of the base currency, the currency that you are trading. For example, in USD that would be $100,000. (USD 100,000 lots are the standard in Forex.) Trades are done with 1 to 10 lots at a time. Depending on the amount of leverage used, the buyer would put down between $500 and $2000 to obtain each lot. Mini-lots of 10,000 units are also traded, as well as flexible lots of odd numbers.

Lots are used with PIPs to calculate profit or loss in Forex. PIP (price in point) is the smallest measure amount of change in price movement. Number of PIPs times the lot value will equal the gain or loss. To calculate the value of a PIP, divide 1 PIP by the rate of its exchange.

Forex lots are exchanged in huge numbers by the largest banks, and a small rise in PIP value will bring in very large profits. By using leverage, purchasers can trade made much larger amounts than they could otherwise trade. The risk is that when the PIP rate decreases, the losses can be equally large. Stop loss is used to help reduce losses. Leverage in the Forex market is far greater than in other markets. To trade $100,000 the buyer only needs to put up $1000. Forex lots brokers talk about gains, but risk is also real.