In financial markets securities are generally traded in lots. A lot is a specific number of units of an instrument. For example, in the Forex market, one standard lot is 100,000 units of the base currency.

The lot size isn’t fixed but can be decided by the trader. If you can’t afford to trade a standard lot of the base currency, then you can buy a mini lot, which is 10,000 units of the base currency or even 1,000 units, which is generally the smallest lot size in Forex called micro lot.

Lot Size Explained

You can also trade in custom lot size like 1.20, which represents 1 standard lot and 2 mini lots, giving you 120,000 units of the base currency. In the stock market a round lot generally represents 100 shares, but even there you can trade what are called odd lots, which represent less than 100 shares.

Choosing the right lot size is very important for risk management because a lot too big can wipe you out fast and a lot too small may not take full advantage of a good trading opportunity.