What is a Lot
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In the forex market, a Lot is the least available trade size which you are allowed to place when trading the Forex market. In normal conditions, brokers will view lots by an increase of 1000 or a micro lot. It is vital to know that lot size have a direct effect on the risk which you would be taking on a trade.*With this in mind, it will be helpful to get a suitable lot size with a tool like a risk management calculator or maybe a trading tool with a chosen output. This will help you whether in a live or practice account as well as help you understand the amount you are willing to risk.
Now let us bring this to our normal lives. At least we should be familiar with a grocery store. Now a certain grocery shop sells pizza in three, that is they don't sell one pizza at once, they rather sell three as a pack. So If you want a pizza here, you will have to buy the pack (which is three). If you want more than three pizzas, you can buy more ‘packs’, which is in multiples of 3. Here the The 3-pizza Pack is our example of a LOT
In the forex market, lots are made of many units of currency in the trade. The smallest lot you could get is a micro lot which is made of 1,000 units of currency (most times known as 1k). If we take this further, we see that the least trade size available is in multiples of 1k. This means that You can trade 1k, 2k, 4k, or even 111k provided it is in multiples of 1k.
So now we see that every 1k can be said to be a lot. It is therefore important you keep your eyes on the amount of lot sizes you trade. So when you as the forex trader places a very large trade size relative to your accounts, the level of risk you are exposed to is also reasonably increased.
So with this well detailed explanation, it is clear to you how currency pairs are basically traded in units of 100,000 (standard lots),1,000 (micro lots) or 10,000 unit (mini lots).
In typical forex trading now for instance, if you enter a long position of one standard lot for EUR/USD with the ask price at 1.4000, you are selling 140,000 USD while purchasing 100,000 Euro . There is still the standard contract (one Lot) in which the USD is the counter currency, here one pip will be the equivalent of $10 ($1 for a mini lot).