Trading lot and point value on the market
Trading lot on the currency market is a unit of measurement of volume of trading instruments. The standard lot means 100 thousand units of currency. That is, a long position of 1 lot on the euro/dollar pair implies the purchase of 100 thousand euros for dollars, and a short position of 2 lots on the currency pair USD/CAD - the sale of 200 thousand dollars in exchange for Canadian currency. Similar to the stock exchange, the trading lot on the currency market is a standard contract size.
Types of trading lots on
It is worth noting that standard lots are not used in interbank practice. Banks sell and buy currency in any volume, so the very concept of "trading lot" is relevant only for .
brokers offer traders the service of trading three types of lots:
- Standard lot (100 thousand units of currency);
- Mini lot (0.1 standard lot or 10 thousand units of currency);
- Micro lot (0.01 of a standard lot or 1 thousand units of currency)
For example, it is open sales position EUR/USD currency pair in lots 0.01, 01 and 1, the quote is five digits.
- For an order with a lot volume of 0.01 the cost of 1 pip will be $0.01;
- For an order with a lot volume of 0.1 the cost of 1 pip will be $0.1;
- For an order with a lot size of 1, the cost of 1 point will be $1.
For a four-digit quotation it will look like this
- For an order with a lot volume of 0.01 the cost of 1 pip will be $0.1;
- For an order with a lot volume of 0.1 the cost of 1 point will be $1;
- For an order with a lot size of 1, the cost of 1 pip will be $10.
Depending on the lot size brokers offer different types of accounts: standard or classic, cent and others.
To trade in the currency market, the trader has the opportunity to open positions by a fractional lot, that is, part of the full lot. For example: 0.25 lot = 25 thousand units of currency.
The volume of the opened position is of paramount importance, because the lot size determines the value of one pip, which directly affects the profit or loss.
Dependence of the value of 1 point on the size of the trading lot
A pip represents the minimum deviation of the current price of a trading instrument. Without the ability to correctly calculate the point value it is impossible to predict profits and losses, and, accordingly, to follow the rules Manifestation on the .
The point value for four- and five-digit quotes is calculated from the ratio of 1 pip (four-digit) = 10 pips (five-digit). For example, the cost of 1 pip in the EUR/USD pair at 1 lot volume for a four-digit quote is $10, for a five-digit quote - $1.
At the moment, every trader can use scripts that display in a separate window or directly on the price chart the point value, the recommended lot size and other necessary information for planning a trade.
For the convenience of the trader in the trading terminal is implemented displaying the profit or loss on an open trading position, both in the currency of the deposit, and in the currency of the order or in pips.
Despite the apparent simplicity, without understanding the importance of lot size and pip value, profitable trading becomes unlikely, because these concepts play one of the key roles in observing the rules of money management.
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