A Beginner’s Guide to Understanding Lot Sizes in Forex
When I first started exploring forex trading, I kept seeing people talk about “lot sizes.” They’d casually drop phrases like:
Just trade one mini lot.
I risk one standard lot per trade.
“Make sure your lot size fits your risk tolerance.
And I’d be sitting there like:
What is a lot… and why does everyone act like I already know?
- If that sounds familiar, don’t worry — I’ve been there. Lot sizes confused the heck out of me in the beginning, but once I broke them down into real-life numbers, it all clicked.
- In this article, I’ll walk you through understanding lot sizes in forex in the same way I taught myself — with clear examples, simple math, and a few “oops” moments along the way.
What Even Is a Lot Size in Forex?
Let’s start at the top.
- A lot size in forex refers to the amount of currency you’re buying or selling in a single trade. It’s how forex brokers standardize trade sizes — kind of like ordering drinks in small, medium, or large.
- But instead of cups of coffee, you’re trading thousands of currency units.
Here are the four most common lot sizes:
Lot Type Units of Base Currency Pip Value (for USD pairs)
Standard Lot 100,000 units $10 per pip
Mini Lot 10,000 units $1 per pip
Micro Lot 1,000 units $0.10 per pip
Nano Lot 100 units $0.01 per pip
So when someone says they’re trading “1 lot,” they usually mean 1 standard lot = 100,000 units of the base currency. (Unless they say “mini” or “micro.”)
My First Time Trading a Lot (And Failing)
- I remember opening a demo trade with 1 standard lot on EUR/USD because I thought, “If I win this trade, I’ll make $100 easy!”
- What I didn’t realize was that each pip was worth $10, and I had no stop loss in place.
- The trade went against me by 40 pips.
Poof — that was a $400 loss… on a fake account, thankfully.
That moment taught me:
Lot size = risk size.
And if you don’t understand your lot size, you’re basically gambling.
How Lot Size, Pip Value, and Risk All Connect
This is the key to understanding lot sizes in forex:
Your lot size determines your pip value, which determines how much money you gain or lose per price movement.
Let’s break it down with an example:
Example: Trading 1 Mini Lot (10,000 units)
Pair: EUR/USD
Lot size: 1 mini lot
Pip value: $1
Stop loss: 30 pips
If the trade goes against you, you lose:
30 pips × $1 = $30
Now, if you were trading 1 standard lot instead, the same trade would cost:
30 pips × $10 = $300
Same setup — 10x more risk. That’s why lot size matters.
How I Finally Made Sense of Lot Sizes
Step 1: Decide How Much You’re Willing to Risk
Most traders recommend risking 1–2% of your account per trade.
So if I had a $1,000 account, I’d risk:
1% = $10 per trade
2% = $20 per trade
I personally started with 1%, just to be safe.
Step 2: Figure Out Your Stop Loss in Pips
Next, I’d look at the chart and figure out where my stop loss should go. Let’s say I was placing it 20 pips away from my entry.
Step 3: Use This Formula to Calculate Lot Size
Here’s the magic formula:
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Lot Size = (Risk in $) / (Stop Loss in Pips × Pip Value per Lot)
But to keep it super simple, I used this mini version:
Micro lot = $0.10 per pip
Mini lot = $1 per pip
Standard lot = $10 per pip
So let’s plug in my example:
- Risk = $10
- Stop Loss = 20 pips
- Pip value = $1 (mini lot)
- If 1 mini lot = $1 per pip, and I’m risking 20 pips, I’d be risking $20 — too much.
- So I’d scale down to 0.5 mini lots (5,000 units), which is $0.50 per pip.
Now I’m risking: 20 × $0.50 = $10 - Perfect!
Tools I Use to Make It Easier
At first, I did the math manually — which was a good learning experience. But eventually, I found some handy tools:
1. Position Size Calculators
Websites like Myfxbook or BabyPips have free calculators. You just input:
- Your account size
- Risk %
- Currency pair
- Stop loss in pips
- And boom — they tell you your ideal lot size.
2. TradingView or MT4 Scripts
Once I got into MetaTrader 4, I found custom indicators that calculated lot size automatically based on stop loss. It saved me a ton of time and guesswork.
Choosing the Right Lot Size for You
Here’s the thing:bigger is not always better. Choosing the right lot size isn’t about “making more money” — it’s about staying in the game long enough to learn.
If You’re Just Starting Out
I highly recommend sticking with micro or nano lots. Even if your account is $1,000+, start small. Focus on learning to read charts, manage risk, and control emotions.
If You’re Using a Demo Account
Play around with all the lot sizes to see how they behave. I learned a ton by opening two demo trades with different sizes and watching how they moved differently — even when the price action was the same.
Mistakes I Made (So You Don’t Have To)
Let me save you from a few facepalm moments I had:
- I ignored leverage – Don’t forget that trading large lots with high leverage can wipe out your account fast.
- I forgot to adjust for JPY pairs – For yen-based pairs, pip values are slightly different. Always check.
- I thought lot size = trade size – It kind of does, but it’s actually about risk exposure, not how “big” your trade feels.
Quick Recap: Understanding Lot Sizes in Forex
Here’s the TL;DR if you need a cheat sheet:
Lot size = number of currency units per trade
Common lot sizes:
- Standard = 100,000 units ($10/pip)
- Mini = 10,000 units ($1/pip)
- Micro = 1,000 units ($0.10/pip)
- Nano = 100 units ($0.01/pip)
Choose your lot size based on:
- Your risk tolerance
- Your account size
- Your stop loss in pips
- Use calculators to make life easier
- Always know how much a pip is worth before opening a trade
Final Thoughts: Small Lots, Big Lessons
- Figuring out lot sizes felt like a weird math test at first, but once I saw how it connected to real dollars and real trades, it all made sense.
- If you’re just starting out, don’t rush to trade big. Use micro lots, take your time, and focus on staying consistent. The goal isn’t to win big right away — it’s to survive long enough to get good.
- Once you’ve mastered lot sizes, you’ll trade smarter, manage risk better, and feel way more confident placing each order.
- Still confused about calculating your perfect lot size? I’m happy to help — drop your numbers and I’ll walk you through it!
Next Article To Read: How I Picked My First Forex Trading Platform