When trading in the forex market, you buy currency pairs in lots. Lot is a unit of measurement that standardizes trading sizes in the forex market.

You can understand it like an egg carton. When you buy eggs in the supermarket, you usually buy them in a carton that contains 12 eggs.

 

The same thing happens with lots, where you buy a preset unit of currency pairs based on the type of lot size you choose.

Different lot sizes

There are four types of lot sizes on the Forex market: standard, mini, micro, and nano.
Standard lots are equivalent to 100,000 units of a currency, while mini-lots, micro-lots, and nano-lots are 10,000, 1,000, and 100 units, respectively.

You can calculate the total size of your position by multiplying the lot size by the number of lots you have placed for an order.

The number of Lot x Types of Lot size = Total Unit 

1. Let’s assume that we’ve placed a buy order of 1 mini lot on USDJPY, the calculation will be as below
   
   1 x 10,000 (mini lot) = 10,000 units
   
   Thus, we’re buying 10,000 units of USDJPY.
    
2. Here’s another example, let’s assume we placed another buy order of 1 standard lot on EURUSD:
   
   1 x 100,000 (standard lot) = 100,000 units
   
   Thus, we’ll be buying 100,000 units of EURUSD.

How do you calculate pip value with lot sizes? 

In general, you can calculate how much profit/loss you made from a pip change (based on your order size) by using the formula below:

(Pip/Market price) x Total unit = Pip Value

• Using the same example, when we placed a buy order of 10,000 units of USDJPY at an exchange rate of $140.20, the pip value calculation will be as below:
• (0.01/$140.20) x 10,000 = $0.71/pip
• This means that you’ll profit/loss $0.71 when there’s a pip change in the order above. 

The formula is slightly different for currency pairs where the USD is not the base currency. 

• Using the second example, when we buy 1 standard lot order of EURUSD at an exchange rate of $0.9955, the pip value calculation will be as below:
• (0.0001/0.9955) x 100,000 = $10.05 x 0.9955 = $10/pip
• This means that you’ll profit/loss $10 when there’s a pip change in the order above. 

Each broker may have a slightly different convention for calculating pip values in relation to relative lot size. It's also important to note that the actual profit and loss you made on each trade will also depend on other fees your broker charges (e.g. spreads, swaps, etc.).

The good news is that most brokers including VCPlus would have embedded all the calculations into the trading system.

In other words, you don't need to do the math yourself! The system does all the calculation work for you.
 

How to choose lot sizes?

Choosing which lot size when placing an order depends on how much risk you want to take on. The greater the lot size of an order, the more money or leverage you’ll need to use, and the greater gain/loss you’ll get for each pip change. 

Using the 2 examples outlined above, the pip value per lot size for each currency pair is outlined in the table below:

The larger the lot size, the higher the cost of a pip change. Therefore, it is advisable for beginners to start with a smaller lot size. Once you are familiar with how lots work in Forex trading, you can proceed with a larger lot size depending on your risk tolerance.

Live backtesting is another way that traders use to reduce risk in forex. As it can help you to determine the win rate, average exit duration for all possible exit strategies, risk-reward ratio, etc. With just a few clicks you can perform backtests on VC Plus to further develop your trading plan and significantly increase your chances of winning in forex trading

​Try automated backtest analysis on VC Plus now!
 

How to start trading in forex?

You can always start with a demo account at VCPlus so that you can improve your forex trading skills before you actually trade on the forex market.

Sign up for a free Demo/Virtual Account with VCPlus now!