Lot

DEFINITION of Lot

A lot is a standardized group of assets that are traded instead of a single asset. A standard is an equivalent to 100,000 units of the base currency in a forex trade.

WHAT IT IS IN ESSENCE

The standard lot is similar to trade size. It is one of the three accepted sizes; the other two are mini and micro.

Often, the actual value of an asset or security means that trading a single unit of it isn’t viable. In these cases, traders will use a lot. Which means that they will use a set amount of a particular asset that is the amount you buy or sell with each transaction.

It indicates that investors have a standardized contract and always known how much of an asset they are trading when they open a position.

A lot can refer to any asset class or financial instrument. In options* trading they are often standardized across the board.

An equity option, for instance, is priced so that each lot is equal to 100 shares of the underlying asset.

In stocks, it’s also a marketable parcel. The minimum number of shares that is generally accepted as OK to offer to buy and sell without being annoying to market makers. Anything else smaller are called odd lots.

With the rise of electronic execution, lots in shares have less relevance.

HOW TO USE

Lot size refers to the quantity of an item ordered for delivery on a specific date or manufactured in a single production run. In other words, it basically refers to the total quantity of a product ordered for manufacturing. In financial markets, it is a measure or quantity increment suitable to or précised by the party which is offering to buy or sell it. A simple example: when we buy a pack of six beers, it refers to buying a single lot of beers.

A small SIZE causes a reduction in variability in the system and ensures smooth production. It enhances quality, simplifies scheduling, reduces inventory. And encourages continuous improvement. In the derivatives market, it is determined by the stock exchange from time to time. The lot size of various F&O contracts for a given underlying is always the same.