What is lot?
A lot is the unit of position size on forex: one standard lot represents 100,000 units of the base currency. Prop firms often cap the cumulative volume allowed per day or per instrument.
Understanding the lot is essential to sizing a position against a drawdown, which is the central operation on a prop firm account.
The units
A standard lot represents 100,000 units of the base currency. On a major pair, a one-pip move is worth roughly $10.
A mini lot is one tenth of that size, so around $1 per pip. A micro lot is one hundredth, around $0.10 per pip.
On futures, the equivalent is the contract, with the same distinction between standard and micro contracts.
Sizing from the drawdown
The useful reasoning starts from the limit, not from the capital.
On a $100,000 account with a maximum daily loss of 5 %, you have $5,000 for the session. If you decide not to risk more than a fifth of that on any one position, your per-trade risk is $1,000. With a stop-loss 20 pips away, that allows a position of 5 standard lots.
It is this chain — limit, share of the limit, distance to stop, size — that protects an account. Starting from available leverage leads systematically to positions that are too large.
The caps imposed
Many firms limit cumulative volume, per day, per instrument or per order. These caps are rarely advertised but can constrain a high-frequency strategy or an approach that scales into positions.
On futures, the limit is expressed in number of contracts and sometimes rises with accumulated profits, which rewards progress.
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Related terms
- Drawdown Drawdown is the maximum loss allowed on a prop firm account before it is closed. It is expressed as a percentage or a fixed amount, and calculated under three models — static, end-of-day trailing or intraday trailing — with very different consequences.
- Equity Equity is the value of a trading account with open positions included, unlike balance which counts only closed trades. Most prop firms calculate their risk limits on equity.
- Leverage Leverage determines the exposure a trader can take relative to the account's nominal capital. At prop firms it ranges from 1:10 to 1:100 depending on instrument and programme, and bears only an indirect relation to real risk.
- Scalping Scalping means taking many very short positions to capture small price differences. Allowed by most prop firms, in practice it runs into minimum holding times and execution conditions.