What are lots in Forex and stock trading?
When you start investing, you may come across the term “lots”. But what are lots exactly? In this article, you’ll learn all about it!
What are lots?
Lots are a way of indicating how many securities you’re trading on the financial markets. The size of a lot depends on the market you’re trading on:
- Stocks: a lot consists of 100 shares.
- Forex: a lot consists of 100,000 currency units.
- Options: an option relates to 100 underlying shares.
- Bonds: a lot is often €1,000,000, but it can also be €100,000.
- Futures: the size of a lot depends on what the contract is for.
Why use lots?
Lots reduce the risk of errors, which is especially important for investors who are investing large amounts. An extra zero can make the difference between a €1,000 and €10,000 investment. With a lot, you simply need to fill in a 1 or, for example, 0.1 to immediately buy or sell a fixed amount. Lots are especially popular among professional investors.
How much is a lot worth when trading Forex?
When you invest in Forex, you’re investing in so-called lots. Lots make it possible to trade in currencies with smaller amounts of money. The following lots exist in Forex trading:
- Micro: 1,000 of a particular currency
- Mini: 10,000 of a particular currency
- Standard: 100,000 of a particular currency
Lots make it possible to open smaller positions in a currency. For example, if you want to trade in EUR/USD and you trade in one micro lot, you sell 1,000 euros to buy dollars. It’s not possible to trade in smaller amounts than a micro lot.
The size of the lot you’re trading with determines the value of the so-called pip. A pip is the minimum amount by which the price can move. Read more about pips here.
As a private investor, you can also speculate on Forex lots with a small amount of money by using leverage. Read this article to learn more about investing with leverage.
Lots & stocks
When trading stocks, a lot relates to 100 shares. Of course, you can also buy a smaller quantity of individual shares.
Options
In options trading, one option contract relates to 100 underlying shares. So, one lot for an option is 100 shares.
If you buy a call option on the Alphabet stock, for example, you have the right to buy 100 shares at a certain price. This standardisation ensures that you, as an investor, always know what you’re entitled to. Some brokers offer the possibility to trade in mini options that relate to only 10 shares.
Futures
A future is a type of derivative that can relate to all kinds of securities. A future can, for example, track a commodity or an index. Therefore, it is important to investigate the quantity to which a future pertains before investing in it.
Bonds
A lot in the bond market is significant; this market is dominated by large institutional investors. A lot often pertains to €1,000,000! Fortunately, as a private investor, you can also invest in bonds with smaller amounts.
