LotsStandardlots- Minilots- Microlots
In financial trading, a batch is the standard amount of purchase or sale of a financial instrument.
An investor can buy a batch of shares of a company and this lot can represent, for example, 100 shares.
In Forex trading, the lot is equal to 100,000 units of the base currency,i.e. the first currency in the pair. With EURUSD the base currency is Euro, while the US Dollar is base currency in USD/JPY.
The exact quote for pip varies depending on the negotiated pair of currencies, but it is worth about $10 per pip for a standard lot.
From the point of view of a margined account on the metatrader4 platform, a standard account is presented as 1.0. In order to understand the dollar equivalent, we multiply this by a constant of $100.000.
In the case of a standard lot of 1pip is equal to $10 US dollars. So placing a trade with 1 standard lot and prices move by 20 pips, I will earn or lose $200 (20x10$ = 200$).
Minilot equals to 1/10 of the standard lot valuei.e 0.1, so $10,000 if the base currency is the dollar.
In this case, each pip is equal to $1, so if the prices move by 20 pips, I will earn or lose $20 (20x1 $ = 10$).
The microlot is 1/100 of a standard batch, or 1/10 minilot, i.e$1.000 .
In this case each pip equals $0,1 so if the prices move by 30 pips, I will earn or lose $3 (30x0.10 $ = 3 $)
In practice, if our broker offers us a leverage of 1: 100 and allows the purchase/sale of microlots, we would need only $10 to open a position ($1000 divided by 100). All brokers allow you to operate with minilots, but not all brokers allow you to operate with microlots.
the Analyst's answerJean Grossett - Financial analyst
It is very important to mention that lot sizes and leverages should not be used by discretion. Risk management and money management should be put into consideration when entering lot size for trades. I will like to mention that in order for a trader to attain success at trading; his lot size must be decided/ generated as a function of the percentage of his investment capital that s/he is willing to lose. Most traders usually expose 2 percent of their capital on every trade.
The second variable in the function is the amount of pips exposed, which is the difference between the potential trade entry price, and the proposed stop loss price. This makes for easy understanding of your risk exposure.
To take on large lots with a small trading capital, a trader will have to apply for a larger leverage. This is not a topic for leverage, but bear in mind that taking on huge leverage has its down side, given that it exposes your capital to more risks as soon as the trades start going against your anticipated direction.