Forex lot unit definition confusion

Beginner Questions
1

Are Lot Units the base or quote currency?

Many trusted forums and forex edu site definitions (including this one) of lot units used in forex refer to the standard lot representing 100,000 units of the BASE currency. They contradict themselves though in their calculation examples for position sizing etc. because the results show they must have calculated the lot units representing the QUOTE currency.

Investopedia.com however defines lot units as the quote currency! So who is right?

There is a lot of confusion with newbies grasping what is going on with pips and lots in say position sizing calculations etc., when using various currencies and may be this is the source of it. Its hard to follow explanations when they initally say one thing and do another!

So what currency are lot units representing? Can an experienced and educated forex trader answer this question correctly please for every newbie out there?

I have searched high and low for an answer I can trust. And it really does make a difference when thinking through the resulting outcome currency of calculations.

2

Lets have a look at an example to try and clear this up

For example,
If a trader buys EUR/USD at 1 lots (which is as you say 100,000 units) with an exchange rate of 1.4000 at that time, then the dealer will lend the investor, you, 140,000 USD in order to BUY 100,000 of EUR

1 lots is equal to $10.00 per pip of movement in this example.

3

I don’t think I worded my question very well, but I guess what I am getting at is what is the resultant value per pip currency after calculating the lot size? Most example calculations show the value per pip e.g. for a standard lot to be $10 USD but can that be 10 EUR or 10 GBP etc depending on the currency pairs? Or is it always calculated to reflect the value per pip in USD? What if my broker account is held in GBP etc?

Thanks in advance to all contributors

4

Have a read through the webpage below.

What are Pips in Forex? | OANDA fxTrade Europe

it may shed some light on your question.

5

Not sure if this helps any, but most sites when showing examples of trades, they use round numbers to ease calculations…actual results will vary, but the idea is the same.

Lots refer to the position size and can be either:
nano calculated at a penny a pip move (per a 100 unit block)
micro calculated at approx 10 cents a pip move (per a 1000 unit block)
mini calculated at approx $1 a pip move (per a 10,000 unit block)
and stardard being approx $10 a pip move (per a 100,000 unit block)

If you buy or sell more than 1 block of units, then the pip move value multiplies by the number of lots you’re trading with…so for example 2 lots of a mini makes each pip move worth approx $2, 2 standard lots = $20, etc. It’s just a decimal placement thing…lol

Another word used for lots is volume, such as the MT4 platform uses.

Some platforms actually list the pip value for each currency pair…MT4 doesn’t. The actual pip value will vary depending on the pair (and whether USD is the base, or the quote, or neither), [U][/U][B]and[/B] the currency of your deposit account. The pairs in my US denominated demo account had different pip values than the same pairs in my Canadian denominated live account had.

You can also get a conversion formula here in babypips school: Lots, Leverage, and Profit and Loss | How Do You Trade Forex? | Learn Forex Trading

Another thing to note, I had a demo MT4 mini account with one broker where a mini lot was entered as a volume of 1.0. On my live account with a different broker, I had to enter 0.1…both calculated to approx $1.00 per pip move. Perhaps the 2nd was a case of a standard account that allowed partial standard lots which equated to minis.

I recommend just focusing on learning to trade, and once you get an “edge” in your trading, then you can choose which pair has the bigger bang for the buck to trade with, but for now, don’t make it more complicated than need be. :wink: