What is a lot? How do I calculate it when trading Forex?

Why Beginners Often Choose the Wrong Lot and Quickly Blow Their Portfolios

If you’re a beginner in the Forex trading industry, you might have noticed that there are two neighbors trading at the same time. The first friend blows their portfolio in the first week, while the second friend can do it steadily. The difference usually doesn’t come from analysis skills but from decisions about contract size, or what we call Lot.

Some people randomly press 0.01 Lot because they fear risk; others press 1.0 Lot because they want quick profits. But no one trades according to the calculation formulas used by professionals. Today, we will discuss what real traders need to understand deeply.

Lot is the key to risk management, not income generation

Before understanding Lot, we need to know the market’s existing problem first.

In the foreign exchange market, prices move in units called Pip (Percentage in Point), generally a change in the fourth decimal place.

Example: EUR/USD moves from 1.0850 to 1.0851 = 1 Pip.

What’s frustrating is if you buy one euro and exchange it for dollars, and the price moves by 100 Pips, you only make a profit of $0.01. That’s why the Forex market has developed standard units.

This unit is called Lot — a way to combine small trades into a large contract that can generate significant profit or loss.

Lot determines how much asset you control.

Lot is a contract unit indicating the amount of securities you trade. The standard rule in the Forex market states:

1 Standard Lot = 100,000 units of the base currency (Base Currency)

The “base currency” is always the first in the currency pair:

• EUR/USD: 1 Lot = 100,000 Euros (not dollars)
• USD/JPY: 1 Lot = 100,000 Dollars
• GBP/USD: 1 Lot = 100,000 Pounds

This basic understanding is the foundation for accurate risk calculation.

Different types of Lots: which one suits you?

Since a Standard Lot requires a huge capital, the market divides Lots into various sizes:

Standard Lot (1.0)

• Units: 100,000
• Suitable for: professional traders and funds
• Risk per Pip: approximately $10 (EUR/USD)

Mini Lot (0.1)

• Units: 10,000
• Suitable for: medium-capital traders
• Risk per Pip: approximately $1

Micro Lot (0.01)

• Units: 1,000
• Suitable for: beginners starting with real money
• Risk per Pip: approximately $0.10

Nano Lot (0.001)

• Units: 100
• Suitable for: basic training
• Risk per Pip: approximately $0.01

Most modern brokers use Micro Lot (0.01) as the starting size for beginners because it’s enough to feel real investment but still relatively safe.

Important lesson: the difference in Lot size affects both profit and loss

This is the core issue: The Lot you choose is like the accelerator of your portfolio. The bigger it is, the more powerful — both when moving in the right direction and when going against you.

Example comparing the same trade with different results

Scenario

• Both have $1,000 capital
• Enter Buy EUR/USD at the same point
• Set Stop Loss and Take Profit 50 Pips apart from entry point

Person 1 (chooses 1.0 Standard Lot)

• Value: $10 per Pip

Person 2 (chooses 0.01 Micro Lot)

• Value: $0.10 per Pip

If the trade goes in the right direction (price rises 50 Pips)

• Person 1: Profit = 50 × $10 = $500 (+50% of the portfolio)
• Person 2: Profit = 50 × $0.10 = $5 (+0.5% of the portfolio)

If the trade goes against (price drops 50 Pips)

• Person 1: Loss = 50 × $10 = $500 (-50% of the portfolio)
• Person 2: Loss = 50 × $0.10 = $5 (-0.5% of the portfolio)

Here, it seems that the person with the larger Lot wins more when the trade is successful. But think deeper: if the person with the large Lot loses, $500 their portfolio will be gone if they make just one more wrong trade with the same size.

Conversely, the person with the smaller Lot can afford nearly 200 wrong trades before blowing up. This illustrates the difference between “trading to get rich” and “trading to survive.”

Conclusion: Choosing Lot is not about making money but about survival

How to calculate the appropriate Lot size: a professional formula

Instead of guessing, professional traders calculate Lot size every time. The goal is to “set an acceptable loss” in advance, such as “I will lose 2% of my portfolio on this trade.”

$500 Three factors you must know before opening an order

1. Account Equity: your account balance ###e.g., $5,000(
2. Risk Percentage: the percentage you are willing to lose per trade )experts recommend 1-3%(
3. Stop Loss: the distance in Pips from entry to Stop Loss point )e.g., 50 Pips(

) The globally used calculation formula

Lot Size = ###Account Equity × Risk %( ÷ )Stop Loss in Pips × Pip Value per 1 Lot(

This formula is actually a mindset shift from beginner to professional:

• Beginners: “How much Lot should I trade?”
• Professionals: “Where should I place my Stop Loss?” and “How much am I willing to lose?”

) Example of EUR/USD calculation

Data

• Account Equity: $10,000
• Risk %: 2% ###= $200(
• Stop Loss: 50 Pips
• Pip Value )1.0 Lot(: )

Calculation

• Lot Size = $10 $200( ÷ )50 × $10(
• Lot Size = 0.4 Lots

Result: You open 0.4 Lots. If the price hits the Stop Loss at 50 Pips, you lose )$200 2% of your portfolio$500 .

$200 Example of XAUUSD (Gold) calculation - high level

If trading gold, the calculation differs because 1 Standard Lot of gold = 100 Troy ounces, not 100,000 units.

Data

• Account Equity: $5,000
• Risk %: 2% (= $100)
• Buy plan at 4,050.00, Stop Loss at 4,045.00
• Stop Loss = $5.00 per ounce = 500 “Points”
• Point Value ###1.0 Lot(: )

Calculation

• Lot Size = ($100) ÷ (500 × $1)
• Lot Size = 0.2 Lots

Key difference: Lot in different markets is not the same

Many traders get confused thinking that 0.1 Lot in all markets means the same thing. But the reality is different:

• 0.1 Lot in EUR/USD: controls 10,000 Euros
• 0.1 Lot in XAUUSD: controls 10 Troy ounces
• 0.1 Lot in WTI Crude: controls 100 barrels

The risks are not the same. Using the same Lot size across different markets without calculation is risking without proper assessment.

Summary: Lot is the art of survival

Lot is not just a number you type into the volume box but a powerful risk management tool.

Choosing the right Lot is more important than finding the perfect entry point because it determines how long you can stay in the market.

Change your question starting today:

• Drop the question: “How much Lot should I trade to get rich?”
• Start asking: “If I go wrong on this trade, how much Lot can I trade to still be able to trade tomorrow?”

That is the mindset of a trader with a longer lifespan.