In general, a 0.01 lot size is called a “Micro Lot” in forex trading, which is equivalent to the 1,000 units of any given currency. The pip value for each micro Lot in any forex pair, where the USD is the quoted currency, e.g. EUR/USD, is $0.1. Suppose you trade a micro lot of EUR/USD and the price of 60 pips moves in your favor, then the profit will be calculated as $0.1* 60 pips which equals $6.
If you are able to understand the concept of lot size effectively, you are able to execute trades more efficiently because you can determine your costs and risk-rewards ratios, making things transparent for you. For Example: When a currency pair only moves one pip per week, and the pip value of each lot size is $6, and your broker charges six pips as a spread, there is no way to earn profits. So, what should you do in this situation? Well, here are the tips that can help you learn how to improve forex trading. Read More
Forex Lot Size Basics:
In forex trading, the standard Lot is equivalent to 100,000 units of any given currency. To compute how much 0.01 lot is, all you need to do is multiply 0.01 by 100, which equals 1. Various types of lot sizes which are commonly used in forex trading are:
Standard Lot- 100,000 units
Mini Lot- 10,000 units
Micro Lot- 1,000 units
Nano Lot- 100 units
We now know that a Mini lot equals 1.000 units of a given currency which is referred to as a 0.01 lot in the forex world. So, if you purchase 0.01 lots of GBP/USD, it means you have bought £1.000 worth of US dollars.
Pip Value For A Lot Size:
Till now, you have learnt about the pip value for a micro lot or 0.01 lot through forex currency pairs where the secondary currency (quote) is the USD. If you are thinking how you can compute the pip value for a lot size, where the secondary currency is not USD, here is the formula you can use:
Pip Value= (1 Pip/Exchange Rate)* Lot Size
Explanation Of The Formula:
1 PIP means the overall value of the pip for the currency pair you are going to trade. Mostly, it is 0.0001
The exchange rate refers to the current price of the currency pair.
The lot size is the no. of currency units which depends on the lot size. It can be 100,000, 10,000 and 1,000.
The results that you will derive from this formula are expressed in relation to the base currency, which you then need to convert into your preferred currency. Usually, USD is the most common currency people like to convert their currency in. The only time where such a conversion is not needed is when the pair has USD as the base currency. Consequently, the results will come on the basis of the base currency.
However, you need to remember that if the currency pair has USD as a quote or secondary currency, you are not required to use the above-mentioned formula. For all other currency pairs, you can use the formula to compute the pip value for a lot size irrespective of the currency pair you are trading.
Additionally, you can choose a low-spread forex broker to save costs on spread while trading. It will help you save much capital when you trade. For Example: if your broker charges five pips as a spread, you need to pay $50 each time you trade one Lot. This is a significant figure that you must consider so that you don’t spend all your earnings on paying commissions to the broker.
