What is a Standard Lot?
In the world of finance, lot size refers to a measure of a quantity or increment of a particular asset or product which is deemed suitable for buying and selling. Different types of products are commonly available in different lot sizes. Historically, spot forex has only been traded in particular lots of 100, 1,000, 10,000 or 100,000 units. More recently, however, non-standard lot sizes are also available to forex traders.
- Standard lots are the equivalent of 100,000 units of the base currency in a forex trade.
- Online brokerages and increased competition have resulted in multiple forms and types of lot sizes.
Understanding a Standard Lot
A standard lot represents 100,000 units of any currency, whereas a mini-lot represents 10,000 and a micro-lot represents 1,000 units of any currency. A one-pip movement for a standard lot corresponds with a $10 change. For example, if you buy $100,000 against the Japanese yen at a rate of ¥110.00 and the exchange rate moves to ¥110.50, which is a 50 pip movement, you have made $500. Conversely, if the exchange rate falls 50 pips to ¥109.50 your net profit and loss is minus $500.
With the advent of online brokers and increased competition it is possible for retail investors to make trades in amounts that aren't a standard lot, mini-lot, or micro-lot. For example, a nano-lot size consists of 100 units of a currency. In the interbank market, where banks trades with each other on platforms such as Reuters and EBS, the standard trading size (or standard lot) is 1 million units in the base currency.