Lot size in forex, index, commodity and crypto currency trading
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The notion of "lot size" in the forex market and CFD trading is a basic element in the development of all trading strategies. The "lot size" is one of the bases of money management since it corresponds to the part of your investment capital on the market.
Therefore, understanding this basic concept is of crucial importance to the success of your ambitions / future success, and will allow you to understand better the "risk" factor, which some traders sometimes tend to forget.
First of all, it is important to note that this article is not intended to tell you which are the best trading strategies to adopt to become a successful trader, but rather to provide you with a precise and detailed understanding of the notion of "lot size" on the markets.
Forex lot definition
What is a lot?
A lot is a unit of value that measures the amount of a transaction. It often corresponds to the size of a financial contract. In other words, depending on the number of lots you trade, the amount invested will be more or less significant. The larger the number of lots, the higher the amount invested and vice versa.
In forex and CFD trading, we identify 3 different types of lots:
- The standard lot
- The mini lot
- The micro lot
All these 3 types of lots will be defined and detailed in the following article. Before that, it is important to note that the notion and value of a "lot" are different depending on whether you trade a currency pair, a stock market index, a commodity, a CFD on a crypto currency or a share.
Before reviewing all these elements, Admiral Markets developed an efficient and effective tool, the "lot calculator". This tool will allow you to easily and quickly calculate the value of your "lot" regardless of the financial instrument and market you are trading.
How to calculate the value of a forex lot
To determine the size of a forex position, you can go to the free Admiral Markets forex lot calculator page in order to know the value of a lot.
The forex position size calculator is an essential tool for your trading, and is easy to use. Here is an example that will allow you to calculate the size of a forex lot automatically.
Example: Choose the forex pair you want to trade (EUR/USD), then enter the number of lots (0,5 lot), and click on "Calculate".
Once the calculation is completed, the size of the forex position automatically appears in the "Results" section, on the "Contract size" line. Here, the value of the forex position is 50 000 EUR.
Calculation of the forex lot = Number of lots * Contract size per lot
Example for 2 EUR/USD lots: 2 * 100 000 EUR = 200 000 EUR
You can find below a summary table of the value of a lot by currency pair.
On the MT4 trading platform and in forex trading, the value of a lot is equal to 100 000 units of the base currency.
The 3 main lot sizes
1 forex lot - Term used in finance to refer to a contract in the financial markets. This concept determines the size of the trade. The forex position is calculated as follows:
- 1,00 means 1 standard lot, or 100 000 units of the base currency
- 0,10 means 1 mini lot, or 10 000 units of the base currency
- 0,01 means 1 micro lot or 1 000 units of the base currency
The standard lot
A standard lot is the reference lot in the forex market, and corresponds to 100 000 units of the base currency, regardless of the currency pair traded.
Therefore, when taking a position of 1 standard lot on the EUR/USD currency pair, the value of the lot is equal to 100 000 EUR. In general, few retail traders trade with standard lots because it requires a significant investment capital on a trading account, or they do so using high leverage.
Here are some examples of standard forex lots:
1 EURUSD lot = 100 000 EUR
1 GBPUSD lot = 100 000 GBP
1 USDJPY lot = 100 000 USD
1 AUDCAD lot = 100 000 AUD
1 EURJPY lot = 100 000 EUR
1 NZDCAD lot = 100 000 NZD
With stock market index CFDs, lot sizes are not standardized and depend on the price of the underlying asset. For example, for the value of a standard CFD DAX 30 lot:
CFD DAX 30 price
5 000 points
CFD DAX 30 price
7 500 points
CFD DAX 30 price
10 000 points
CFD DAX 30 price
12 500 points
5 000 EUR
7 500 EUR
10 000 EUR
12 500 EUR
1 000 EUR
1 250 EUR
The same calculation must be done to calculate the lot size on other stock market indexes, such as CFDs on CAC 40, DJI 30, IBEX 35, JP 225, NQ 100 and other indexes.
On CFD shares, a lot is equal to one share, and its value is equal to the share price. On CFD shares, we can't have mini lots or micro lots yet.
The mini lot
Mini lots are more commonly used by retail traders because they offer an attractive potential return without the need for too much initial investment. A mini lot corresponds to 10 000 units of the base currency, or 0,1 lot on your MT4 trading platform.
Therefore, when taking a position of 1 mini lot on the EUR/USD currency pair, the value of the lot is equal to 10 000 EUR.
Here are some examples of mini forex lots:
0,1 EURUSD lot = 10 000 EUR
0,1 GBPUSD lot = 10 000 GBP
0,1 USDJPY lot = 10 000 USD
0,1 AUDCAD lot = 10 000 AUD
0,1 EURJPY lot = 10 000 EUR
0,1 NZDCAD lot = 10 000 NZD
The micro lot
Micro lots are the most popular lot size used by forex traders. This allows risks attached to forex trading and leverage to be limited to a minimum. That's why micro lots are strongly recommended for beginner traders. A micro lot corresponds to 1 000 units of the base currency, or 0,01 lot on your MT4 trading platform.
Therefore, when taking a position of 1 micro lot on the EUR/USD currency pair, the value of the lot is equal to 1 000 EUR.
Here are some examples of micro Forex lots:
0,01 EURUSD lot = 1 000 EUR
0,01 GBPUSD lot = 1 000 GBP
0,01 USDJPY lot = 1 000 USD
0,01 AUDCAD lot = 1 000 AUD
0,01 EURJPY lot = 1 000 EUR
0,01 NZDCAD lot = 1 000 NZD
Forex lots calculations
In order to make the above explanations even more explicit, here is how the lot calculation is carried out. Let's take the example of the most traded currency pair in the forex market, the EUR/USD currency pair. Here, the Euro is the base currency.
If a trader buys a standard EUR/USD lot at 1,1720, he buys 100 000 EUR, i.e. a value of 1,1720 * 100,000 = 117 200 USD per lot.
If a trader buys a mini EUR/USD lot at 1,1720, he buys 10 000 EUR, i.e. a value of 1,1720 * 10 000 = 11 720 USD per lot.
If a trader buys a micro EUR/USD lot at 1,1720, he buys 1 000 EUR, i.e. a value of 1,1720 * 1 000 = 1 172 USD per lot.
Explanation of CFD indexes lots
For CFD stock market indexes like the CAC 40 or the DAX 30 indexes, 1 CFD lot represents 1 CFD contract. Each fluctuation of a CFD index results in a change of one index point. In other words, if the CAC 40 index price goes from 5 280 points to 5 295 points, we will say that the index has increased by 15 points.
Therefore, the value of an index point for buying or selling a CFD stock market index lot is 1 EUR.
To know the value of the lot of a CFD index contract, go to the Admiral Markets CFD index calculator: it's quick and easy.
Example: For 1 CFD CAC 40 contract, the point value will be 0,10 EUR for a variation of 0,1 index point. Thus, if the index increases from 5 280 points to 5281 points, your Admiral Markets trading account will show a loss or profit of 1 EUR.
Note: The above example is also valid for the DAX 30 stock market index.
Explanation of CFD commodity lots
For CFDs on commodities such as Gold, 1 CFD lot corresponds to 1 CFD contract, or 100 ounces of Gold. Also, the quotation step (pip) corresponds to the 3rd digit after the decimal point.
Example: For 1 CFD Gold contract, i.e. 100 ounces of Gold, the value of the quotation step is 0,08 EUR for a variation of 0,001. Thus, if Gold increases from 1 347,60 USD to 1 347,70 USD, your Admiral Markets trading account will show a loss or profit of 8 EUR.
Explanation of CFD crypto currency lots
For CFD crypto currency contracts such as Bitcoin (BTCUSD), 1 CFD lot corresponds to 1 CFD contract, or 1 Bitcoin. The quotation step corresponds to the 2nd digit after the decimal point. Also, the value of the quotation step of a CFD crypto currency contract is 0,01 USD.
Example: For 1 CFD Bitcoin contract (BTCUSD), i.e. 1 BTC, the value of the quotation step is 0,01 USD for a variation of 0,01. Thus, if Bitcoin goes from 9 886,30 USD to 9 887,30 USD, your Admiral Markets trading account will show a loss or profit of 1 USD.
Consult the Admiral Markets free trading Bitcoin calculator to find out how the fluctuation of crypto currencies affect your trading account.
You now know the different lot sizes in forex, stock market index, commodity, and crypto currency trading. Be aware that the more you increase the number of lots on a trading position, the greater your risk in the market.
It is advisable to trade carefully, especially by encouraging the use of micro lots. The key to success in the markets lies mainly in money management and careful use of leverage. Feel free to test trading on a demo account.
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