Why do beginner traders need to know about Lots? How to calculate contract size safely

When you just start trading Forex, a common question that lingers is “How many Lots should I press to be good?” Some people are afraid of risk and always trade 0.01 lots. Others want to get rich quickly and trade 1.0 Lot without much thought. The truth is, there is no single correct answer for everyone, but there is a formula used by all professional traders. In this article, we will clarify what a Lot really is and, most importantly, how to calculate it safely.

What is the origin of a Lot?

Imagine the Forex market moving prices of metals by one Pip (Percentage in Point), which is very small. For example, EUR/USD moves from 1.0850 to 1.0851. That is 1 Pip, worth only $0.0001. If you trade 1 Euro at a time, even if the price moves 100 Pips, you only gain $0.01.

This is why the market needs a “Lot” — a unit of measurement to aggregate small trades into a larger chunk that makes profits or losses meaningful.

A Lot is a contract unit that determines how much of the asset you control.

In the Forex market, there is a universal rule: 1 Standard Lot = 100,000 units of the base currency (Base Currency)

The base currency is always the first currency in the pair:

• EUR/USD → You control 100,000 Euros (not dollars)
• USD/JPY → You control 100,000 US Dollars
• GBP/USD → You control 100,000 Pounds

This is the first step toward proper risk management.

How many types of Lots are there? Which one should I choose?

Because 1 Standard Lot requires a large capital, brokers create smaller Lot sizes accessible to everyone.

4 popular Lot sizes:

• Standard Lot (1.0) = 100,000 units → $10/Pip → for professionals
• Mini Lot (0.1) = 10,000 units → $1/Pip → for intermediate traders
• Micro Lot (0.01) = 1,000 units → $0.10/Pip → for beginners and strategy testing
• Nano Lot (0.001) = 100 units → $0.01/Pip → for basic learning (some brokers only)

For beginners, 0.01 Micro Lot is the suitable choice because it still feels the risk (compared to Demo accounts) but isn’t large enough to wipe out your account on the first trade.

How does Lot size affect profit and loss?

This is a crucial point to understand clearly: Lot size = your portfolio’s accelerator.

Imagine you and a friend both have $1,000. Both of you think EUR/USD will go up. You buy at the same price, set a Stop Loss at 50 Pips, but you press 1.0 Standard Lot while your friend presses 0.01 Micro Lot.

If the prediction is correct (the price rises 50 Pips):

• You: 50 × $10 = +$500 (+50% of your portfolio)
• Friend: 50 × $0.10 = +$5 (+0.5% of your portfolio)

If the prediction is wrong (the price drops 50 Pips):

• You: lose 50 × $10 = -$500 (-50% of your portfolio) → remaining $500
• Friend: lose 50 × $0.10 = -$5 (-0.5% of your portfolio) → remaining $995

Here, the difference becomes clear: if you are wrong again, your portfolio could be wiped out, while your friend can still trade about 200 more times.

This is why “Lot size is not about making profits but about managing risks.”

The formula for beginners to calculate Lot

Professionals never guess Lot sizes; they set three things first, then use a formula to find the answer:

3 variables to know:

1. Account Equity = your account balance (e.g., $5,000)
2. Risk Percentage = % of your capital you’re willing to risk per trade (recommended 1-3%)
3. Stop Loss in Pips = distance from entry point to SL (e.g., 50 Pips)

Main formula:

Lot Size = (Account Equity × Risk Percentage) ÷ (Stop Loss in Pips × Pip Value)

Try with real examples:

Example 1: Trading EUR/USD

• Capital: $10,000

• Willing to risk: 2% = $200

• Stop Loss: 50 Pips$10

• Pip Value of 1.0 Lot: $200 Applying the formula:

• Lot Size = (÷ )50 × $10$200

• Lot Size = $500 ÷ $200 - Lot Size = 0.4 Lot

Result: Open 0.4 Lot → if SL is hit, you lose ()2%###

( Example 2: Trading XAUUSD )Gold$100

Gold is more complex because it uses “Points” instead of “Pips”:

• 1 Point of Gold = $0.01
• Trading 1.0 Lot of Gold: price moves by $1.00 = 100 Points

Scenario:

• Capital: $5,000
• Willing to risk: 2% = $1
• buy at 4,050.00 → set SL at 4,045.00
• Stop Loss = $5.00 = 500 Points
• Point Value: $100 Calculation:
• Lot Size = (÷ )500 × $1$100
• Lot Size = $500 ÷ (- Lot Size = 0.2 Lot

How many Baht is 0.01 Lot? )The common question(

This question often comes from traders confused because 0.01 Lot of EUR/USD and 0.01 Lot of Gold have different values.

For EUR/USD )0.01 Lot(:

• = 1,000 Euros
• If exchange rate is 1 EUR = 35 THB )assumed(
• = 35,000 Baht )approximately(
• Price move of 1 Pip = $0.10 )about 3.50 Baht(

For XAUUSD )Gold(:

• = 1 Troy Ounce ÷ 100 = 0.01 Ounce
• If gold is $2,000 per ounce )assumed(
• = $20 )about 700 Baht(
• Price move of $0.01 Point = $0.10 )about 3.50 Baht(

Important: Lot value depends on )1( asset, )2( current price, )3( exchange rate.

Different Lots in different markets

A common mistake: traders think that 0.1 Lot = 0.1 Lot across all markets. Let’s see:

• 0.1 Lot of Forex )EUR/USD( = 10,000 Euros
• 0.1 Lot of Gold )XAUUSD( = 10 ounces
• 0.1 Lot of Oil )WTI( = 100 barrels

Values and risks are not the same. Therefore, do not use the same Lot size across markets; always recalculate for each asset.

Summary: From beginner to professional

Lot is not just a number; it is a risk management tool.

Change your mindset starting today:

• As a beginner: “How many Lots should I trade to get rich?”
• As a professional: “If I am wrong on this trade, what Lot size will prevent me from losing too much?”

The truth: The correct Lot size is more important than the perfect entry point because it determines whether you survive or wipe out your account in the long run.