Just so that you do not waltz into the forex market and demand to buy or sell ONLY ONE dollar or two, the industry has ‘standard sizes’ of currency that a trader can buy or sell at any one time to (a) Make trading profitable and worthwhile for all parties involved and (b) Make the calculation of profits, losses and total trades easier.
A standard forex lot, also called 1 lot, represents 100,000 units of the base currency. For example, if you are buying 1 lot of the EURUSD currency pair you are actually putting 100,000 EUROS (EUR is the base currency here) into the market.
A mini lot on the other hand, is 10,000 units. It is also called 0.1 lot size. Finally, a micro lot, which is what most small investors will trade, is 1,000 units. You, of course, do not need to actually need to have 1,000EUR to trade a micro lot. You can just have 100EUR with a leverage of 10:1 so that your 100EUR can control a 1,000EUR market share but as I always say in this website and in my ebooks, leverage amplifies BOTH profits and losses so try and keep away from very large leverages.
As a by-the-way, you should theoretically make 10USD per pip if you are trading Standard lots, 1USD per pip if you are trading Mini lots, and 0.10USD if you are trading Micro lots. The calculation and proof of this however will be left as an assignment to the student.
Have any questions regarding Lot sizes or how they affect your trading? Please share them with us in the comment section below and I am sure everyone will be eager to help you out.
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I wish you happy and prosperous trading.