Contracts, Lots and Symbol Specifications

Second Officer · SO01: Know What You Trade · About 25 minutes

Safety rule: Never assume that the same lot size means the same cash exposure across two markets.

Your mission today

By the end you can read an instrument specification and calculate what one price move means for your position.

Before you start

Bring the three-instrument worksheet from SO01.1 and a calculator. Use a demo terminal or published sample specifications. We will use imaginary numbers so nobody mistakes this for their broker's rules.

1. What is a lot?

Think of buying a box of oranges. A shop might sell a box of ten. Another might sell a box of twenty. Saying "one box" does not tell you how many oranges you bought.

A lot is like that box. It is a platform's trading volume unit. Its meaning depends on the symbol.

For one imaginary EURUSD account, one lot represents EUR 100,000. In another imaginary gold contract, one lot represents 100 troy ounces. Those are different amounts in different units. Never move a calculation from one symbol to another without checking.

The contract size tells you what a full lot represents. The volume tells you how many lots you selected.

2. Worked example: calculate the loss first

Assume an imaginary EURUSD derivative has these published specifications:

• One lot: EUR 100,000.
• Allowed volume: 0.01, 0.02, 0.03 and so on.
• Profit currency: USD.
• Your selected volume: 0.10 lot.

First calculate your exposure: 100,000 EUR/lot × 0.10 lot = EUR 10,000.

Now assume the buy fills at 1.1000 and its exit fills at 1.0975. The move is −0.0025 USD/EUR.

Your price result is EUR 10,000 × −0.0025 USD/EUR = −$25, before fees.

For comparison, a move up to 1.1025 gives +$25, before fees. The two price moves are equally large. Their sign changes because the direction changes.

In ordinary EURUSD quoting, 0.0001 is one pip. The 0.0025 move is 25 pips. At 0.10 of this particular standard contract, each pip is $1. That produces the same $25 answer.

The cash result can differ after commission, financing and execution. Also, account currency may not be USD. That requires a conversion rather than copying this answer.

Original Black Box Journey teaching illustration. Synthetic example; not historical market data.

3. Minimum volume is not the same as safe volume

The minimum volume is the smallest order the broker accepts. The volume step is the allowed increment. A symbol might permit 0.01, 0.02 and 0.03 lots, but not 0.015.

Suppose your risk plan allows an imaginary $5 maximum planned loss. Your proposed 0.10 lot would lose $25 over the example's 25-pip stop. It is too large for that plan.

At 0.01 lot, the same 25-pip move would lose about $2.50 before costs, assuming the same contract terms. The 0.01 volume fits the planned price loss, but you must still include costs and possible slippage. Minimum permitted volume is merely a broker rule, not a recommendation.

If the smallest allowed order exceeds your cash-risk limit, the correct decision is SKIP.

4. Symbols that look alike can behave differently

A gold chart may be labelled XAUUSD, XAUUSD.a or something similar. An index may show a familiar company index name. That label does not define the contract multiplier.

Check each symbol's tick size, the smallest price increment allowed by its contract, and tick value, the cash value of one tick for a specified volume. Your trading terminal may also display a "point" whose meaning differs from one pip or tick.

For example, an imaginary instrument worth $2 for each 0.5 price move would lose $8 if it moves 2.0 against you: 2.0 ÷ 0.5 = 4 ticks, then 4 × $2 = $8. If the quote currency differs from your account currency, convert at the relevant rate.

Do not assume that example describes real gold, indices or futures. Check the exact broker fields.

5. Build a symbol card before touching volume

For each market, write: broker and legal entity, exact symbol, contract size, price digits, tick size, tick value, profit currency, minimum and maximum lot, volume step, trading hours and known trading costs.

Some brokers display calculated tick values that change with currency conversion. Test the result using the platform's demo profit calculator where available. If the specification and calculator disagree, stop and investigate.

This small card prevents expensive unit mistakes. It also saves you from repeating the same lookup every time you open a chart.

Common mistake

A student reads "0.10 lots" on a gold order and assumes it risks the same as EURUSD. Lots are not a universal unit of money. Fix the mistake by calculating contract units and cash per price movement for each exact symbol.

Plain-English glossary

• Lot: One broker-defined unit of trading volume.
• Contract size: The quantity represented by one full lot.
• Notional exposure: The market value represented by your contract.
• Tick size: The contract's minimum permitted price step.
• Tick value: Cash gained or lost per tick under stated volume and currency assumptions.
• Volume step: The allowed increment between order sizes.

Try it yourself

Using demo specifications, make symbol cards for EURUSD, gold and an index. Calculate each symbol's cash loss for one imaginary adverse move. Show the contract unit, distance, volume, currency and costs separately. Record your source and a screenshot. Mark any missing field UNKNOWN and do not calculate from an invented multiplier.

What you can now do

• Read the volume and unit fields from a contract specification.
• Calculate a price loss using contract size and movement.
• Reject an order that violates a cash-risk limit.

Next lesson

SO01.3 · Pips, Points, Ticks and Conversion. You will put consistent units on every price and cash calculation.