A lot is the unit in which position size is measured. In forex a standard lot is 100,000 units of the base currency. One standard lot of EUR/USD is a position of 100,000 euros. A mini lot is 10,000 units, a micro lot is 1,000, and some brokers offer nano lots of 100.
In MetaTrader 5 all of these are expressed as fractions of a standard lot. One standard lot is 1.00, a mini lot is 0.10 and a micro lot is 0.01. The minimum volume on most retail accounts is 0.01, and positions can usually be increased in steps of 0.01.
Why size determines everything
The lot size, together with the distance to the stop loss, is what turns a price movement into money. A 50-pip move is worth $500 on one standard lot of EUR/USD, $50 on a mini lot and $5 on a micro lot. The market did the same thing in each case. The trader's exposure was different.
This is the reason experienced traders think about size before they think about direction. A good trade taken too large can end an account; a mediocre trade taken at sensible size is a small loss. Position sizing has its own page. The short version is that lot size should be worked out from how much you are willing to lose if the stop is hit, not chosen first and lived with afterwards.
Lots in other markets
The word lot carries over to CFDs on gold and indices but means something different in each case, and the contract specification is the only reliable source.
For gold, one lot is usually 100 troy ounces, so 0.01 lots is one ounce and a $10 move is worth $10.
For an index, one lot is one contract, and the broker states what a one-point move is worth on one contract. On some brokers it is $1 per point, on others $10, and the minimum volume varies too. A "0.1 lot" position on the US 500 at one broker can be a very different exposure from 0.1 lots at another.
Your account is £5,000 and you are willing to risk one per cent, £50, on a trade in EUR/USD with a 40-pip stop. With a sterling account and EUR/USD at 1.08, GBP/USD at 1.27, one pip on a micro lot is about 8 pence. £50 divided by 40 pips is £1.25 per pip, which is about 0.16 lots. You would trade 0.16 lots, which the broker's volume step of 0.01 allows.
Now try the same calculation on a £500 account. One per cent is £5, or 12.5 pence per pip over 40 pips, which is about 0.016 lots. The minimum is 0.01, so you can trade, but at 0.01 lots you are risking about £3.15, well under one per cent. At a 10-pip stop the minimum lot would risk less than a pound. Small accounts are constrained by the minimum lot from below, and that is why every serious EA states a minimum recommended balance.
In a well-built EA, lot size is not a setting you type in. It is the result of a calculation: the amount the EA is prepared to risk on the trade, divided by the distance to the stop, converted through the value of a point on that symbol. A wide stop produces a small lot and a tight stop produces a larger one, so every trade carries the same risk. The lot is an output.
The broker's minimum volume, volume step and maximum volume are the limits the EA has to work within. If the calculated size is below the minimum, the EA has to either take the minimum, which risks more than intended, or skip the trade. Which it does should be documented. An EA that silently rounds up to the minimum on a small account is taking risk the trader did not ask for.