The Basics of the Forex Market – Part 4

The final part of our basics series is going to discuss lot size. Lot size is simply the size of your position. The standard forex lot size is equal to 100,000 units of any given currency, although as explained in our margin and leverage articles, you would only require $2,000 with 1:50 leverage to open a position of this size. Any decent fx broker should also offer different lot sizes such as mini lots (10,000 units), micro lots (1,000 units) or nano lots (100 units). The table below shows the pip values of each.

Lot Size Units of base currency Volume Pip Value (USD)
1 Standard lot 100,000 1.0 $10
1 Mini lot 10,000 0.1 $1
1 Micro lot 1,000 0.01 $0.10
1 Nano lot 100 0.001 $0.01

Various currency pairs will also have an impact on the pip value of your trading position. To calculate the pop value for various currency pairs using a standard lot size, we use the formula below.

EUR/USD at 1.1260:
(.0001 / 1.1260) * 100,000 = 8.88
8.88 * 1.1260 (to determine the $ value) = $9.99 (round up to $10 per pip)

USD/JPY at 110.91:
(.01 / 110.91) * 100,000 = $9.01 per pip

It’s important to note, that the formulas are slightly different between the two. When USD appears first, the number is already expressed as USD. Also, because the pip is the second decimal place in USD/JPY, the initial number we divide by the price also reflects this.

Wrapping things up

This series of articles about the basics of the Forex market introduced the very basic concepts that every beginner trader should learn before you open your first trade. With some practice and a bit of experience you will find these concepts easy to pick up, so you can have more awareness of them in your day-to-day trading.

Source: Vantage FX Blog