What is LOTS in forex trading?

What is LOTS in forex trading?

In this article, we will explain in a simple way what much is, what types exist and how they are calculated.

What is very explained in simple terms

Much is the standardized unit for buying and selling in the foreign exchange market. This means that participants in this market trade any number of lottery tickets of the currencies they choose. The term lot means 100,000 units of the currency or currency sign or any currency.

Let’s take an example with the US Dollar (USD) and the Euro (EUR) as the most traded currencies:

10 lots USD equals 1 000 000.00 USD, because each lot consists of 100 000 units of the chosen currency 10 lots USD = 10 x 100 000 = 1 million.

2 tickets EUR equals EUR 200 000. 2 tickets EUR = 2 x 100 000 = EUR 200 000.

To put it another way. When buying and selling a good or product, all parties involved, both buyer and seller, must use the same unit of measurement.

Examples of different units of measurement are kilos, dozen, meters, lot, minilot and others.

When we talk about the currency market, lottery tickets are the unit of measurement used.

What’s lots for?

Transactions on the foreign exchange market are made by buying and selling a certain number of tickets.

Example: We buy 3 tickets of USD/EUR, which is equivalent to a purchase of 300,000 USD.

So the amount we buy or sell determines the volume of our trade.

The volume of trade is decisive in trading because it determines the risk of our trade: how much we may lose if the price goes against us. It also tells us how much we will earn if the price moves in our favour, so we have determined the risk/reward ratio of our trade.

Types of lottery tickets in Forex trading

In the foreign exchange market, a lot always refers to 100,000 units of a currency, just as a dozen always refers to 12 units.

However, to make it easier for a larger number of people to participate in the market, brokers offer the opportunity to invest or trade smaller amounts than much. Smaller amounts are obtained by dividing much into smaller parts:

Nanolot: offered exceptionally by some brokers and can be equal to 100 or even 10 units of a coin, depending on the trading platform.

How to calculate the number of lots in Forex

When investing in Forex, you need to know two basic features in advance:

First, the currency pair to invest in.

Secondly, the number of items to be purchased, which is represented by the amount of money that the buyer is willing to risk. Remember that the number of lots directly determines both the profit and loss capacity of a given open position.

To help calculate the number of lottery tickets suitable for the investment strategy, brokers and some websites offer calculators.

The way it works is simple: we enter the variables we are asked to enter and click Calculate: As a result, we get the number of tickets to buy or sell according to our trading plan and the data provided.

The data to be entered are:

Currency pairs. Here you can choose which currency pair you want to invest in. Remember that the first currency or base currency is the one you buy and the second currency is the one you pay with.

Account currency. The currency on your account, usually euros or dollars.

Account size. The total amount available in your account for trading or investing.

Risk ratio %. The amount or percentage of risk we take when trading determines what percentage of your Account Balance you are willing to invest.

Stop Loss points. If the market moves towards us, we indicate when we close the trade. Profit or loss is always measured in points.

Contract size. Minimum investment size, usually one lot or 100,000 units.

Summary

Currency is exchanged or traded in units called lots.

Much is the unit of measurement used to buy or sell currencies on the Forex market.

Much always refers to 100,000 units of the selected currency.

Smaller units obtained by dividing a lot by 10, 100 or 1000 can be used. They are called mini-lots, micro-lots and nano-lots.

There are calculators that make it possible to calculate the purchase amount for a particular investment strategy or to calculate the purchase amount for a particular investment strategy.

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