5

In a foreign exchange market, what is the meaning of buying 1 lot (100K) of EUR/USD?

Does that mean we have USD 100K, and we are exchanging it for Euro? Or do we have EUR 100K, and we are exchanging it for dollars?

Improve this question
2
  • "In Forex" doesn't make any sense. EUR/USD is 100,000 EUR per lot.
    – base64
    Commented Jul 14, 2015 at 18:32
  • 1
    In your original question you defined a "lot" as being $100000, which is incorrect and possibly the source of your confusion. I edited the question to remove the "$" from that.
    – dg99
    Commented Jul 14, 2015 at 22:40

1 Answer 1

Reset to default
9

A lot (sometimes called a round lot) always refers to the quantity of physical good that you're getting, like a carton of eggs or a barrel of oil. The tricky thing in the case of forex is that the physical good also happens to be a currency.

A spot currency product trades in the denomination on the right-hand side (RHS) of the product name. So if you're buying EUR/USD you are paying USD currency to get EUR "units", and if you're selling EUR/USD you are receiving USD by giving away EUR "units". The EUR is the "physical good" in this case.

The way I remember it is to think of all products (not just currencies) as trading pairs. So AAPL in my mind is AAPL/USD. When I buy AAPL/USD I am paying USD to get AAPL units. When I sell AAPL/USD I am receiving USD by giving away AAPL units.

The thing on the left is the physical good (even if it happens to be money) that you are exchanging, and the thing on the right is the money that you are exchanging.

So, when I buy a lot of AAPL, I am buying 100 shares at their current price in dollars.

Similarly, when I buy a lot of EUR/USD, I am buying 100K Euros at their current price in dollars.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .