What is a lot in Forex and how to calculate trading volume?

A lot in Forex trading is just a specific sum of funds being used for a trade. Luckily, there are many sizes of lots that traders can use.
 
The most popular types of lots in Forex are standard size lots. This is the combination of 100,000 units of a specific currency. So, if a trader opens a trade worth $100,000 that means that they are trading one standard-sized lot for USD/EUR or any other currency pair with USD in it.
 
The sizes are divided like this:
 

  • Standard lot - 100,000 units of currency
  • Mini lot - 10,000 units of currency
  • Micro lot - 1,000 units of currency
  • Nano lot - 100 units of currency

 
Depending on the company a trader is using, he or she could have their trade size classified as either 1 standard FX lot size or 10 mini-sized lots.
 
But what is volume in Forex? Volume is the sum total of all your trades included in the exchange rate.
 
A volume is an indicator that Forex brokers use to determine the size of a customer.

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How to calculate trading volume

In order to determine what volume Forex trading is, we need to bring an example of FX trading lots. Let’s imagine that a trader just opened 1 standard lot for JPY/USD. What this means is that they want to buy 100,000 Yen worth of dollars.
Let’s say that the exchange rate is 1.2, meaning 1 JPY = 1.2 USD (this is not the real exchange rate of JPY/USD).
So, upon opening this trade, the trader will be given a trading volume which is calculated with the following formula.
 
{Lot size x exchange rate} = trading volume
 
So in the case of our example, the formula would work like this.
 
Trading volume = {100,000 x 1.2}
 
This means that the trading volume is $120,000. If the exchange rate was 1.3 then it would be $130,000.


How it works with different trades

The amount of trading volume will depend on which position the user opens as well as the FX lot size they go for. There are 3 types:
 
  • Round turn lot
  • Partial lot
  • Lot


Round turn lot

When a trader opens a buy trade, but then closes it with a sell trade, we call that a round turn lot. The volume here is calculated in both ways, meaning that the trader gets the trading volume for both buy and sell positions.
 
Step 1: Buy position gives the trader 1 lot in volume because that’s what he or she “buys”.
Step 2: The sell position also gives the trader 1 lot as they exchange for the same currency they did previously.
Step 3: We combine the two trading volumes and gain 2 lots in total trading volume.


Partial lot

What is a lot in Forex trading but a feature for strategies? One of these is called the partial lot. When a trader opens a buy order for 1 standard lot but closes it with a sell order of 0.5 standard lots we call it the partial lot. This means that the trader did not close their buy position completely and still has some volume pending.
 
In this case, we would calculate the volume like this:
 
  • Step 1: Buy position gives the trader 1 lot once again.
  • Step 2: When he/she closes only half of the lot with a sell position, he/she gets only 0.5 lot in trading volume.
  • Step 3: We combine the two trading volumes and get 1.5 lots. That’s the whole trading volume for one partial lot.
 
When only half of the lot was closed with a sell position, the volume of that sell position was halved as well.


Lot

A regular lot can be any size. But what does size change? What is a standard lot? What does it change?
 
So if a trader opens a buy trade with a JPY/USD exchange rate of 1.20 for 1 standard lot, the regular lot’s trading volume will be just 1 lot and nothing more. No more volume will be added until the trade is closed.


What is a nano lot? What do sizes change?

Beginners usually choose anything besides standard and mini lots. This is because of the number of funds that need to be used.

It is much more likely for beginner traders to have smaller budgets which is why nano and micro-lots are usually the most popular.
 
But why would a beginner want a Forex trading volume indicator through these lots? What do they get out of it?
Well, there are a few reasons, but one of them is the most important.
 
The no deposit bonus. This is a “benefit” that companies usually give to their customers. It’s basically funds that the company gives you as a trader to trade with. They cannot be withdrawn unless you trade a specific amount of volume.
 
For example, if the company gives you $100 as a bonus, it is likely that they will ask you to trade 10 times more in volume to withdraw it. If we do the math, we can see it would be equal to one micro lot, or $1000.
Once that volume is reached, the $100 given as a bonus is yours.


Lots and volume are mostly part of MT4

Now that you know what is a lot size in Forex trading, it’s important to note that it’s mostly part of one software, MetaTrader 4. That’s right, MT4 is where lots were first used and are used today.
 
Other software has its own methods of calculating lots or trading volume but is still similar to how MT4 does it. For example, cTrader simply calls them units, but they have pretty much the same formula as well.

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Forex lots explained - Key takeaways

Lots are nothing but a unit of measurement. The size ranges from 100,000 to 100 and can be applied to pretty much any currency. They’re mostly used to track the trading volume or help beginner traders out.
 
Trading volume is something used to determine the level of a trader. If the volume is high, it means they can access some more advanced tools and services from the company.

FAQ on Forex lots and volume

How can I increase my trading volume?
Show answer
There are only two ways you can increase the trading volume. Either open larger trades that will require a larger deposit, or use the maximum leverage available.
 
Leverage is basically funds borrowed from the Forex broker. Most volume Forex trading strategies revolve around leverage actually. Imagine that you are using $100 for the trade, and the broker has a leverage of 1:100. If you use it, your trade will be turned into $10,000 because 100x100. If leverage was 1:50, the trade size would have been $5,000 because 100x50.
 
But be careful, leverage is a very dangerous tool that only experienced traders should use.
 
What if I have a low trading volume?
Show answer
Nothing happens. If you have low trading volume it doesn’t mean that your broker will close your account or give you some kind of penalty. It just means that you are not yet ready for a more complicated account with more tools.
 
Basically, the moment you reach required trading volumes, the broker will likely contact you and ask you if you’re ready for a new account. Besides that, nothing really happens.
 
Where is my trading volume tracked?
Show answer
Almost every trading software has a Forex trading volume indicator attached to it. So, whenever you are trading, it should be very easy to simply open your account details and see the amount displayed in front of you.
 
If you still can’t see it or the software does not have that feature, then the best way is to simply contact your broker’s customer service and ask to be connected with an account manager. They will be able to figure out your trading volume within minutes. Or you can just see your FX lot sizes and multiply them by the exchange rate. It may not always be correct though.
 
Why use lots and not just regular numbers?
Show answer
Lots are a rather new concept. You see, lots in Forex became popular when the market started to shift to the internet. This meant that computers were now in charge of calculating and managing trades.
Considering how many trades happen every day, the developers needed to somehow make it easier for computers. So, they simply took large numbers and reduced them. Now 1 lot is 100,000 units of currency, which is calculated once, instead of being calculated 100,000 times.
 
Lots are simply ways to speed the trading process up.

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