Key Terms
Lot size
The standardised quantity of the underlying asset that a single trade contract represents, fixed by market convention rather than chosen freely for each trade.
By the Investfora Research Desk
Lot size is the standardised quantity of the underlying asset that a single trade contract represents. Rather than allowing any arbitrary amount, most markets define fixed contract units so that every trade is a multiple of a known quantity. In a hypothetical currency market, for instance, a standard lot might be set at 100,000 units of the base currency, with smaller standardised sizes labelled mini and micro lots. Standardisation makes contracts interchangeable and keeps the pricing arithmetic uniform across participants.
A worked example
Suppose a hypothetical currency pair moves in increments of 0.0001, one pip. A position of one standard lot, 100,000 units, changes in value by 100,000 multiplied by 0.0001 — that is, 10 units of the quote currency — for every one-pip move. Two standard lots would change by 20 units per pip; a mini lot of 10,000 units would change by 1 unit per pip.
Lot size describes the scale of a contract and nothing more. It does not tell you the margin a position requires, how much of an account a move of a given size represents, or anything about the direction or merit of the trade itself.