What is a lot in forex? In its meaning, a lot is a unit of measurement of the transactions we make, some traders also call lots with Quantity. This time we will learn about what a lot is in forex which is very helpful for traders to make transactions.

In the past, before the internet developed like it is today, forex trading could only be done by a few people because it required a lot of capital. It takes 100,000 units of currency to be able to trade forex, something that not many people can do, especially those with limited funds

In forex 1 standard lot has a value of 100,000 currency units, but currently with the support of increasingly advanced technology traders with limited funds are greatly helped by the existence of smaller lot units mini lots (10,000 units), micro lots (1000 units), and nano lots (100 units). It's just that in Indonesia there are quite a few brokers who provide nano lots.

The Role of Leverage in Trading

Leverage plays a very important role in helping traders make transactions with small capital but have a value equivalent to the actual transaction value. In the past, forex trading required funds of 100,000 currency units, but with leverage, you don't need to spend that much money, you can make transactions with a value equivalent to transactions using funds of 100,000 currency units.

As we already know, leverage is a loan fund given by a broker to a trader, so that the trader can have greater purchasing power. There is a difference in leverage if you use a different account, what you need to know now is what type of account you are currently using. Is it mini, standard or others.

Leverage can be interpreted as a comparison ratio, for example 1:1, 1:100, 1:500 this means that if there is a fund of $100 in leverage 1:100 then the fund of $100 has the power of funds equivalent to $10,000. Another example if there is a fund of $100 in leverage 1:500 then the fund of $100 has the power of funds equivalent to $50,000 or 500 times the funds owned. This is an example of the use of leverage related to the initial capital of forex trading.

Relationship between Leverage and Lots

In relation to the lot in forex that will be used to trade, the calculation is like this. For example, to open 1 position on the EUR/USD pair, without using leverage, 1 lot requires a margin of 100,000 EURO (the currency unit currently used is the EURO currency).

However, if you use 1:100 leverage, the margin required to make a transaction of 1 lot EUR/USD is:

Contract Value x Number of Lots (Leverage x BUY Price)

100,000 x 1 (1:100 x 1.13000) = $1,130

If you use leverage of 1:500, then the margin required to make a transaction of 1 lot EUR/USD is

Contract Value x Number of Lots (Leverage x BUY Price)

100,000 x 1 (1:500 x 1.13000) = $226

From here we can see the relationship between lots and leverage, where with different leverage the margin required to make a transaction of 1 Lot EURO at a price of 1.13000.

The Importance of Paying Attention to Lot Size

This lot size is very important to pay attention to, this is a very basic rule when learning forex. This is because:

  • Lot is the smallest unit that we can transact, this means that if we want to make a transaction with a larger lot size, the margin required will be greater.
  • The number of lots traded greatly affects how much profit and loss is obtained from a transaction. A larger number of lots will certainly get a larger amount of profit, but please note because the risk of loss obtained will automatically be greater.

Currently, forex brokers have provided several trading account options that have different lot sizes, as well as different leverage sizes. Mini lots (10,000 units), micro lots (1000 units), and nano lots (100 units).

But it is quite difficult to find a broker that provides an account with nano lots. For traders who are new to trading, it is highly recommended to trade using mini or micro lots first because the size is not too big and the risk can be more controlled, besides the capital needed is also more affordable.

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