Lot size

Two meanings share the phrase, and most of the confusion around position sizing lives in the gap between them. In the first, lot size is the volume typed into a ticket, meaning how many lots are being dealt, which is a decision. In the second, it is how many units of the underlying one lot covers, which is properly called the contract size and is a property of the instrument rather than of the order. An instruction written in one sense and read in the other produces exposure off by whatever the contract size happens to be.

The two are determined by different parties. The volume is chosen by the trader, within a minimum, a maximum and a step that the firm publishes per instrument. The units per lot are written into the instrument's specification and are identical for every account dealing that instrument at that firm. One can be changed on a ticket; the other cannot be changed at all, and reading it is the only way to know what a stated volume means.

Everything a sizing calculation needs sits downstream of both. Units of exposure follow from the volume and the units per lot; the value of one pip or tick follows from the units of exposure; and what is at stake on the position follows from that value and the distance to the exit. This is why a rule quoted as a lot size, with no statement of which sense is meant and no instrument named, cannot be applied to anything, and why careful writing says either volume in lots or units per lot instead.