There’s a lot to be said about lots. Did you see what we did just there? We used the words lots and turned it into two different meanings. In the real world a lot or lots are a reference to an area. In Forex a lot is a term of measurement as well only it is a different kind of measurement. In simple terms, Forex lots are measurements of specific amounts being traded. Another way to look at it is that the number of currency units you are either trying to buy or sell is a lot. Here is a look at some interesting things related to Forex lots that should help you understand them better:
Lots come in a number of different sizes in Forex trading and they have nifty little names to help you identify them better. The mini lot is 10,000 units of currency. The micro lot is 1,000 units. The nano lot is 100 units. The standard lot size is named ‘standard’ and it contains 100,000 units.
There’s No Gladys Knight With These Pips
The way in which currency value changes value in relation to another currency is called a pip or pips. The pip is an extremely tiny percentage of a currency unit’s value. In order to benefit from the wee changes that occur in pips, is it a good strategy to trade in large lots. Or that’s what they’ve told us. When you think about it, even if a pip is miniscule, when you trade in a lot size of a standard 100,000, that teeny pip can actually account for a much more significant return (or loss).
Then There’s Leverage
Leverage is cool. When using leverage in Forex trading you are basically using an amount of money that your broker fronts you to use. It’s a bit more complicated than that, but it is the general idea. The amount of leverage you can use depends on how well you and your broker get along. Plus, it really comes down to how much cash the both of you are comfortable using in such a manner.
Don’t Bid, Don’t Ask
Another way in which your lots get used in Forex trading is through the bid/ask spread. How this works is that when you open or close a trade you are subjected to the bid/ask quote. The ask price is what you pay attention to when buying a currency. The bid price is what you focus on when selling your currency.
There’s A Lot To Learn About Lots
We did it again. A play on words related to the word lot. As long as you remember that what you are using in your Forex trading career is measurements of volume, you’ll understand the concept a little quicker. Don’t let the terms confuse you as the majority of them actually describe what they mean and how they are used. By studying about all of these things before you begin live trading, you’ll be a wiser trader yourself.