A standard lot is a unit of measurement in Forex trading that represents 100,000 units of the base currency in a currency pair.
For example, in a EUR/USD pair, one standard lot would be 100,000 euros.
The concept of a standard lot determines the size of the trade and, consequently, the amount of profit or loss a trader can potentially make.
A standard lot is 100,000 times bigger than a pip.
When you trade a standard lot, each pip movement in the currency pair can result in a fixed profit or loss. For instance, in the EUR/USD pair, a one-pip move in a standard lot equals $10 of profit or loss.
Standard lots are typically used by experienced or institutional traders who can handle the larger position sizes, while smaller traders might use mini or micro lots to reduce risk.
Understanding standard lots helps traders manage their risk, calculate potential gains or losses, and determine the appropriate position size for their account balance and trading strategy. It is a fundamental element of Forex trading, offering clarity in terms of trade value and exposure to market movements.