// TRADING TERMINOLOGY

What is Lot Size?

A lot is the standardized unit used to measure the volume of a trade. It dictates exactly how much money each pip of movement is worth.

In-Depth Explanation

You do not buy "100 pounds" of a currency. You buy lots. In Forex, a Standard Lot is 100,000 units of the base currency. A Mini Lot (0.1) is 10,000 units, and a Micro Lot (0.01) is 1,000 units. If your account size is £1,000 and you open a 1.0 Standard Lot, you are massively over-leveraged. For a Standard Lot on EUR/USD, every pip movement is worth roughly $10. A standard 20-pip stop loss would cost you $200 (20% of your account). Position sizing based on lot size is the only mathematical way to ensure you never risk more than 1% of your account per trade.

1.0 Lot = 100,000 Units

For most major USD-quote pairs, trading 1 Standard Lot means 1 pip of movement equals exactly $10.

Source: Volume Metrics

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Practical Example

"You want to risk £50 on a trade with a 20-pip stop loss. You calculate that each pip must be worth £2.50. You adjust your lot size accordingly (roughly 0.25 lots) before entering the trade."

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Related Terminology

Pip

A "pip" (percentage in point) is the foundational unit of measurement in forex trading, representing the smallest standard price move in an exchange rate.

Margin

Margin is the portion of your account balance that the broker "locks away" as collateral to keep your leveraged position open.

Leverage

Borrowed capital from your broker that lets you control a position larger than your deposit — amplifying both profits and losses equally.

Spread

The spread is the difference between the bid (sell) price and the ask (buy) price. It is the immediate cost of executing a trade.

Tradeable Instruments Affected

EUR/USDEuro / US Dollar

GBP/USDBritish Pound / US Dollar

USD/JPYUS Dollar / Japanese Yen

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