Lots and leverage

What a lot represents

Forex positions are commonly described in lots. A standard lot usually represents 100,000 units of the base currency, a mini lot 10,000 units and a micro lot 1,000 units. Your broker may also display position size directly in units.

• 1.00 standard lot: 100,000 units
• 0.10 lot: 10,000 units
• 0.01 lot: 1,000 units

Position size controls risk

Lot size determines how much the value of an open position changes when the exchange rate moves. The same stop-loss distance creates a much larger monetary loss on a large position than on a small one. Choose position size only after deciding the maximum loss and stop distance.

How pip value changes

Pip value depends on the pair, position size, exchange rate and account currency. On many USD-quoted pairs, one standard lot is approximately $10 per pip, but this is not universal. Use the broker platform’s calculator for the exact instrument and account currency.

Leverage and margin

Leverage allows a trader to control exposure larger than the cash deposited. Margin is the amount reserved to support that exposure. For example, a 2% margin requirement means $2,000 can support a $100,000 position. The full $100,000 exposure—not only the margin—determines gains and losses.

Margin level and close-out

Brokers monitor equity relative to used margin. If losses reduce equity below the broker’s required level, positions may be closed automatically. Close-out policies differ by legal entity and account, and fast markets can produce slippage.

Safer sizing process

First decide the entry and invalidation point. Next choose a cash-risk limit that you can afford. Calculate the lot size that fits both, then check total exposure across all open positions. Practise the calculation on a demo account before using real money.

• Do not select maximum leverage automatically
• Do not increase lot size to recover losses
• Account for correlated currency positions
• Leave free margin for normal price movement