What really is really a lot?
A lot may be that the unspecified variety of components of an advantage currently being traded. Many times, the true value of the asset or collateral usually means that trading only a lone unit isn’t viable. In these cases, traders will use a lot: a set amount of a particular asset that you buy or sell in each transaction. If the position size is not the standardised lot amount, it is considered an ‘strange lot’.
The value of a lot is set by an exchange, or a similar market regulator, and is usually the minimum number of units that you can buy of a particular financial instrument. This regulation means that investors always know how much of an asset they are trading when they open a position.
Lot sizes at Forexmnvary between different markets and contracts. Some markets have mini or micro contracts, which are a fraction of the standard contract size. Consequently, the lot sizes of these smaller contracts are a fraction of the standard.
Examples of lots
A lot can refer to any asset class or financial instrument, but the specific meaning of a lot and its application will vary from market to market.
For example, the standard lot size for the stock market is 100 shares – it is the number of shares that are bought and sold in a normal transaction. This is also known as a ‘around lot’. Exchange traded funds (ETFs) are priced in the same way, so that one lot is equal to 100 shares.
The bond market is slightly different, because the lot sizes tend to be issued in far larger sums. For example, the standard lot for US government bonds is $1 million.
In options trading, lots are often standardised across the board. An equity option, for instance, is priced so that each lot is equal to 100 shares of the underlying asset. However, in the futures market lots are called ‘contract sizes’ instead – these vary greatly depending on what type of contract is being traded.
When trading indices for example, the Australia 200 has three different contract sizes. The standard, mini and micro. The standard contract has a lot size of A$25, the mini A$5 and the micro A$1. When the Australia 200 is trading at 6000, the notional value of each contract is as follows:
- Standard: 6000 x A$25 = A$150,000
- Mini: 6000 x A$5 = A$30,000
- Micro: 6000 x A$1 = A$6,000
Forexmnuses lots for CFD trading, where a single contract represents a set quantity of the underlying asset.